Today, medical-related debt is the second leading cause of personal
bankruptcies - and the middle class is suffering the most.
Five long years ago, Rose Shaffer's life seemed sweet. A nurse since
the early 1970s, Shaffer had spent most of her 60 years working at
various Chicago hospitals, rising through the caregiver ranks and
raising three kids. Now in the twilight of her career, she'd been hired
as director of nursing at a home health agency in the suburb of
Lombard. The position made Shaffer proud - she knew her salary could
pay off the mortgage on her house a little sooner. At the time, her
cousin Barack Obama was fast becoming a rising star in the Illinois
State Senate.
Seven months into her new job, Shaffer suffered a heart attack, and an
ambulance rushed her to Advocate South Suburban Hospital. Shaffer
assumed she was automatically covered - health insurance was a given
at her previous nursing jobs. She thought she'd filled out the proper
forms. But she hadn't.
A week later, Shaffer received a bill from Advocate for the three days
she'd been hospitalized. It was for $18,000. Shortly thereafter,
Advocate began sending letters to Shaffer demanding payment. Then, a
summons to appear in court was tossed on her ****ch. Advocate was suing
her.
Shaffer was terrified and didn't show at her court date. She says she
even received a letter from the Cook County Sheriff's Department,
threatening arrest unless she appeared. Under pressure from Advocate
and now behind on her mortgage payments, Shaffer filed for Chapter 13
bankruptcy in December 2002, which meant her debtors would garner a
reduced ****tion of the money she owed.
"The hospital saved my life, but now they were trying to kill me,"
Shaffer says.
Rose Shaffer's experience has become disquietingly common. Since 2000,
Harvard associate medical professors Steffie Woolhandler and David
Himmelstein, along with Harvard law professor Elizabeth Warren and Ohio
University sociology and anthropology professor Deborah Thorne, have
been compiling data on bankruptcies in the United States. Their study,
published on Feb. 2 by the medical policy journal Health Affairs, found
that between 1981 and 2001, medical-related bankruptcies increased by
2,200 percent, an astoni****ng explosion in a relatively short period of
time. This spike far outpaced the 360 percent growth in all personal
bankruptcies during roughly the same period.
In addition, the study uncovered surprising information about the
affected population. While poor, uninsured Americans have long been the
most obvious victims of a defective healthcare system, it's the middle
class that suffers most in this case, accounting for about 90 percent
of all medical bankruptcies, says Warren.
"The people we found to be profoundly affected are not some distant
underclass. They're the very heart of the middle class," Warren says.
"These are educated Americans with decent jobs, homes and families. But
one stumble, and they end up in complete financial collapse, wiped out
by medical bills."
With so many middle-class American households potentially vulnerable,
you might think politicians would seek a solution sensitive to their
interests. Yet the momentum in Wa****ngton is in the opposite direction
- toward bankruptcy "reform" that would make things worse for people
who have been financially ruined by illness.
Until 25 years ago, filing for bankruptcy because of debts from a
medical problem was virtually unheard of. In 1981, University of Texas
law professors conducting bankruptcy research noticed that a handful of
the debtors they were studying could never quite pay off their medical
bills, but while these bills certainly didn't help, they weren't
forcing people into bankruptcy.
Today, by contrast, medical-related debt is the second leading cause of
personal bankruptcies, topped only by job loss. Edward Janger, a
professor at Brooklyn Law School, gives two reasons for the change:
First, there's been a dramatic rise in healthcare costs. In 2002
Americans paid an average of $5,440 in medical expenditures, up $419
from the previous year. A September 2004 study by Families USA found
that 14.3 million Americans now hemorrhage more than a quarter of their
earnings into healthcare costs.
Second, the past 15 years have seen a tremendous spike in the number of
Americans who either don't have health insurance or have such skeletal
coverage they might as well have none - there are currently some 45
million uninsured Americans, a jump of 10 million since 1990.
"What you're seeing in the bankruptcy numbers is a function of the fact
that we have a very thin social safety net in this country in terms of
health care," Janger says.
The Health Affairs study, which looked specifically at a cross section
of 1,771 bankruptcies filed in 2001, concluded that the average medical
debtor was a 41-year-old homeowning woman, with children and at least
some education. The study also found that a majority of middle-class
debtors had health insurance both when they first grew sick and at the
actual time they filed, another surprise. Insurance alone, it turns
out, doesn't prevent medical bankruptcy, because it is often too ****ous
to provide a real buffer against the financial burden of a serious
illness.
"A lot of people were bankrupted because of co-payments, deductibles or
uncovered services, which added up to thousands of dollars in bills,"
says Steffie Woolhandler.
The story of Judy and Phil Specht shows how quickly livelihoods and
bank accounts can collapse in the shadow of an illness, even when
people initially have health insurance. It also demonstrates how
medical problems, when coupled with job loss, can be particularly
devastating - many debtors grappled with medical debt and income loss
simultaneously, according to the Health Affairs study.
In 2001 the Spechts were living comfortably in Albuquerque, N.M.,
having worked at solid jobs there for years - Judy at a Philips
semiconductor factory and Phil as a maintenance man at a retirement
community. Together, the Spechts were bringing in around $40,000, which
in New Mexico was enough to make the $787 monthly mortgage payment on
their new home and still have a little left. Lately, Phil hadn't been
feeling great - his body ached more than usual - but the Spechts
both had health coverage through their jobs. In their late 50s, they
were near enough retirement to taste it.
By 2002, though, Phil had grown worse, and after a series of tests,
doctors diagnosed myelodysplastic syndrome, a bone-marrow disease that
can cause leukemia. Phil retired and began collecting $1,080 a month in
Social Security disability payments.
"I still had a good paying job with insurance that could cover us both,
so I thought we'd be OK," Judy says.
But when Philips started shuttering some of its New Mexico factories
three months later, Judy was laid off. She quickly found a job working
at another semiconductor company, but after five months she was axed
again. Now desperate, Judy took a housecleaning job at near-minimum
wage. It was all she could find.
Fortunately, the Spechts only paid $50 a month for Phil's visits to
University of New Mexico Hospital oncologists, thanks to UNM's charity
care. But they had trouble affording the regular blood work Phil needed
and the monthly $507 in prescription drug payments for both of them,
climbing quickly because Judy developed high blood pressure, high
cholesterol, acid reflux and an underactive thyroid - "stuff I hadn't
experienced before this."
To save money, Judy chopped her blood pressure and thyroid tablets in
half, took the acid-reflux medication less often than prescribed and
quit her cholesterol pills altogether. "I was left with a choice of my
medication or a roof over our heads."
To afford Phil's medicine, the Spechts sold their furniture, some
jewelry and a camera. But by the end of 2003, $4,000 deep in medical
debt and with $90,000 still left on their mortgage, the Spechts knew
they couldn't hold on to their house any longer.
They hired a bankruptcy lawyer and filed for Chapter 7, freeing them
from debt but eviscerating their credit for seven to ten years. The
bank foreclosed on their mortgage, and the Spechts moved twice before
settling in a cheap apartment for people over 55. Although they now
participate in a new state program that offers drug discounts to
elderly New Mexicans, the Spechts still owe $1,000 in medical bills;
even after filing for bankruptcy, the couple continued to rack up bills
until Judy finally landed a state job that gave her health coverage.
The stress of the past three years has changed the Spechts forever.
Judy describes the whole process as "frightening and humiliating."
"We'd wanted to retire in that house. We were heartbroken," she says.
The nightmare lived by the Spechts and other Americans could become
even more harrowing if some members of Congress have their way. For
years now, a powerful coalition of banks and credit-card companies has
been lobbying Congress to make it harder to file for Chapter 7
bankruptcy, which cancels personal debt, in favor of Chapter 13, which
involves paying back a ****tion over a period of time. As the number of
personal bankruptcies has surged - from approximately 718,000 in 1990
to 1.54 million in 2004 - banks and credit-card companies say,
they've lost billions of dollars in canceled payments.
Republicans, and some Democrats, have long been pu****ng a bill that
would create a means test for debtors who want to file for bankruptcy,
preventing anyone who makes over the median income in their home state
from filing for Chapter 7, but allowing them to file for Chapter 13.
The idea, proponents say, is to make debtors take better care of their
money.
Although the bill has failed in years past, Iowa's GOP Sen. Chuck
Grassley, buoyed by Republican Congressional gains and past sup****t
from moderate Democrats like minority leader Harry Reid, recently
reintroduced the legislation. "People who have the ability to repay
some or all of their debt should not be able to use bankruptcy as a
financial planning tool so they get out of paying their debt scot-free
while honest Americans who play by the rules have to foot the bill,"
says Grassley's spokesperson Jill Kozeny. Kozeny also notes that
medical expenses would be deductible under the means test, and that
adjustments to the test would be allowed if debtors show "special
cir***stances."
Jim Manley, Reid's communications director, says Reid will sup****t the
legislation, which he believes will force people to "take a measure of
personal responsibility" for their financial affairs. Reid and some
other Democrats will insist that it contain a provision preventing
abortion clinic protesters from filing for bankruptcy to avoid paying
legal fines (a practice that Reid, who is anti-choice, nonetheless
opposes). Such a provision was added to the 2002 version of the bill in
an attempt to give political cover to Democrats (including Sens. Chuck
Schumer and Hillary Clinton) who voted for it.
The legislation has nonetheless elicited some principled and vigorous
Democratic opposition, from John Kerry, Jon Corzine, Dick Durbin and
Ted Kennedy, among others. The bill's critics argue that it will
squeeze the lower middle class right out of the system. This
demographic, they say, might still earn above their state's median
income, deductions notwithstanding, yet may not be able to afford to
hire an attorney to prove through litigation that their story is
exceptional.
Moreover, says Elizabeth Warren, there's a good chance many
middle-class debtors wouldn't even be able to make Chapter 13
repayments. Nearly two-thirds of those who file for Chapter 13 aren't
able to pay up, leaving them vulnerable to creditors for years, she
notes.
"The catastrophic problems which cause families to file for bankruptcy
are not properly addressed by imposing greater requirements on people
trying to get a fresh start," adds Ralph Mabey, co-chair of the
legislation committee for the National Bankruptcy Conference, a
national collective of bankruptcy experts that opposes the legislation.
Medical debtors, as the Health Affairs study shows, are suffering real
hard****p, which makes it hard to believe they are simply ****rking their
obligations and freeloading off the system, as Republican rhetoric
suggests. In the two years before filing, 22 percent of families in the
study went without food, 30 percent had a utility shut off, 61 percent
went without im****tant medical care and half failed to fill a doctor's
prescription.
"The bill is written against a template that everyone has overspent,
including those with breast cancer, those fighting chronic illness,
those who have lost children to cystic fibrosis or other terrible
illnesses," says Warren. "It's like responding to a cholera outbreak by
closing down the hospitals."
Whatever happens politically, the fate of medical debtors will also be
shaped by several cases now winding through the courts. Last summer,
law firms filed numerous lawsuits against nonprofit hospitals for
overcharging uninsured patients, a practice that often contributes to
bankruptcy. Attorney Richard Scruggs, who headed government lawsuits
against big tobacco companies, is leading the federal effort.
On the state level, a class-action suit is pending in Illinois that
involves Advocate, the source of Rose Shaffer's troubles. In November
2003 seven former patients filed the suit, charging Advocate with
imposing discriminatory pricing (the number has since risen to 17).
There is ample evidence for their claims. In March 2003 the Service
Employees International Union, the nation's largest healthcare union
and an adversary of Advocate in organizing campaigns, released a study
on the collection practices of 59 Cook County hospitals. Advocate,
which operates six hospitals in the county, ranked worst. According to
SEIU, Advocate charged uninsured patients 139 percent more than their
insured counterparts and was three times as likely to sue as other
local hospitals. A month after the re****t's release, Advocate announced
an increase in charity care for patients who couldn't pay. But for Rose
Shaffer and others, it was too late. Later that year SEIU and Barack
Obama brought Shaffer to Springfield to tell her story to the State
Assembly.
"Advocate fails to provide automatic charity care discounts to the
poor, and as a result the uninsured are still victimized by aggressive
pricing and collections tactics," says Joseph Geevarghese, director of
SEIU's Hospital Accountability Project. Advocate, which says it offers
among the nation's most generous charity care, filed a motion to
dismiss and a counterclaim against SEIU, accusing the union of
defamation. The motion was denied last November, but Advocate plans on
refiling. The lawsuit will likely be tried this year.
Still, University of North Carolina associate law professor Melissa
Jacoby, who testified before Congress last summer on how hospital
collection practices can cause bankruptcy, doesn't think litigation on
its own will right the system. "Hospitals with the most egregious
practices certainly should clean up their acts," she says, "but
millions of people will still experience medical-related financial
problems and their consequences, including debt collection and
bankruptcy."
Jay Westbrook, a University of Texas law professor who co-wrote the
1981 bankruptcy study, believes bankruptcy patterns are an indicator of
other social problems - high unemployment, rising divorce rates
(people often file for bankruptcy after a divorce) and, in this case, a
crumbling healthcare system. "Bankruptcy occurs when there is a crisis.
That's what it's there for," Westbrook says.
A study by the Center for Studying Health System Change shows that 20
million families struggled with medical debt in 2003. Federal
projections suggest that out-of-pocket health expenses will rise at
least until 2013. Elizabeth Warren and Steffie Woolhandler foresee
medical bankruptcies continuing to climb as the uninsured population
swells, overburdened hospitals aggressively collect to meet the bottom
line, prescription drug prices increase and employers ****ft medical
costs to employees.
The only real cure for the medical bankruptcy epidemic, according to
Physicians for a National Health Program, is national health insurance
- a system where coverage isn't linked to employment and medically
necessary care is accessible to all without deductibles or copayments.
If such sweeping reform seems a long way off, there are short-term
fixes too. One would be to exempt medical debtors from any new laws
restricting bankruptcies. "The bankruptcy courthouse doors must stay
open for those who really need it," says Warren. Another worthwhile
improvement, notes Henry Sommer, president of the National Association
of Consumer Bankruptcy Attorneys, would be to better protect the homes
of medical debtors; many states allow people only a small amount of
home equity after they've gone bankrupt.
But even modest measures to protect medical debtors face an
increasingly unforgiving environment. Although the recent litigation
will likely force some hospitals to rethink collection practices,
there's evidence they are finding other ways to reclaim money, like
pu****ng debtors toward lenders and hospital-sponsored credit cards. And
the bankruptcy reform pending in Congress could hurl many more
middle-class Americans into lifelong debt.
Rose Shaffer, for one, is still reeling. She works two nursing jobs,
seven days a week for nearly 60 hours, so she can make the monthly
$2,088 in Chapter 13 payments she still owes. Advocate has yet to claim
its ****tion, but Shaffer's credit is severely damaged and will be for
the next decade. She's praying her 11-year-old car will make it through
the Chicago winter.
"Sometimes I would start crying. I wished I was dead, but I was too big
a coward to kill myself," Shaffer says. "I never thought my life would
end up like this."
Dan Frosch is a New York-based journalist whose work has appeared in
the Los Angeles Times, The Source and the Santa Fe Re****ter. Dan also
contributes to In These Times, AlterNet and VIBE.
http://www.alternet.org/rights/21211/
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