State-Mandated Disability Insurance as Salve to the Consumer Bankruptcy Imbroglio

Article excerpt

From Main Street to Wall Street, Americans are hurting. In 2009, over 1.4 million families filed for bankruptcy. Researchers examining the causes of bankruptcy discovered that as many as sixty-two percent of all bankruptcies were precipitated by a medical crisis. Because many Americans are living paycheck to paycheck and lack disability insurance, when a medical crisis strikes, bank accounts are quickly depleted by the amalgam of high medical bills and lost wages. Disability insurance provides needed wage replacement when a worker is unable to work due to an illness or injury. This Article presents the case for state-mandated disability insurance as a solution for combating the rising number of consumer bankruptcies. It describes the prevalence of medical bankruptcies and the impact of disabilities on American families as well as the most commonly available substitutes for comprehensive disability insurance and explains why these substitutes do not provide workers with adequate wage protection. Then, this Article presents state-mandated disability insurance as a solution to the medical bankruptcy imbroglio and provides statistical evidence demonstrating that states mandating disability insurance for most workers have on average a lower per capita bankruptcy rate than the national average. Finally, this Article argues that the best alternative for increasing access to disability insurance is for more states to mandate disability insurance, and provides a blueprint for designing state disability insurance programs.

TABLE OF CONTENTS

I. INTRODUCTION .................................................................... 1329

IL THE MEDICAL BANKRUPTCY IMBROGLIO ............................ 1333

III. THE DISABILITY IMBROGLIO .............................................. 1338

IV. SUBSTITUTES FOR DISABILITY INSURANCE ......................... 1347

A. Comprehensive Health Care: An Inadequate Solution 1347

B. Social Security Benefits: An Inadequate Solution ........ 1354

C. Workers' Compensation: An Inadequate Solution ...... 1355

D. Retirement Plans: An Inadequate Solution ................. 1356

V. A SOLUTION TO THE MEDICAL BANKRUPTCY AND DISABILITY IMBROGLIOS ................................................ 1358

VI. POLICY RECOMMENDATIONS TO REDUCE THE MEDICAL BANKRUPTCY IMBROGLIO .............................................. 1361

A. Existing State-Mandated Disability Insurance Programs: A Better Solution ..................................... 1361

1. Funding ............................................................... 1361

2. Benefits ................................................................ 1362

B. Blueprint for New State-Mandated Disability Plans: An Ideal Solution .......................................................... 1366

1. Coverage .............................................................. 1366

2. Funding ............................................................... 1367

3. Plan Administration ............................................. 1368

VII. CONCLUSION .................................................................... 1370

I. Introduction

A record 2.8 million American families received a foreclosure notice in 2009, 1 and over 1.4 million families filed for bankruptcy.2 Over 7.2 million jobs have been lost since the beginning of the Great Recession in 2007,3 and roughly 15.4 million Americans are unemployed.4 As startling as those statistics are, it is even more surprising that many American families report that it is not getting laid off from a job or having to downsize in the wake of a divorce that pushes them to brink of financial ruin; rather, it is a medical crisis.5

Clearly, this phenomenon has not happened overnight. The American family has been struggling for years. Over the past two decades, an increasing portion of Americans have filed for bankruptcy. …