Posted on June 15, 2009

Are you one big illness away from bankruptcy?


By Dean Calbreath
San Diego Union-Tribune
June 14, 2009

“The greatest health is wealth,” the classical Roman poet Virgil once said.

But to keep your health can cost you your wealth. In fact, it can drive you into bankruptcy.

A survey this month showed that in 2007, on the eve of the current recession, roughly two-thirds of bankruptcies in the United States involved people who were driven into insolvency because they could not keep up with their medical bills.

Although health care has been eclipsed by overdue mortgages and credit card debt as the primary cause of bankruptcy, it remains a potent driver of debt. And once the current wave of foreclosures abates, it could quickly regain its No. 1 status in the bankruptcy courts, unless something is done to fix the medical system first.

“Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy,” said David Himmelstein, an associate professor of medicine at Harvard.

“For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments and deductibles that illness can put you in the poorhouse,” Himmelstein said.

The study by Himmelstein and a team of researchers at Harvard Law School, Harvard Medical School and Ohio University shows that 62 percent of bankruptcies in 2007 were at least partly caused by problems involving health care. That’s up from 55 percent in 2001.

More than three-quarters of the people who were bankrupted for medical reasons had health insurance at the start of the “bankrupting illness,” according to the study, which will be published in The American Journal of Medicine in August. Most of them “were solidly middle class before financial disaster hit.” Two-thirds were homeowners, and three-fifths had gone to college.

“In many cases, high medical bills coincided with a loss of income as illness forced breadwinners to lose time from work,” the study reported. “Often illness led to job loss, and with it the loss of health insurance.”

Even filers who retained their insurance often faced high out-of-pocket medical costs, because of co-payments, deductibles and services that the insurers declined to cover.

Among the health-related bankruptcy cases, the medical debt averaged $17,749 for filers who retained their insurers; $22,568 for filers who initially had insurance coverage but lost it through the course of their illness; and $26,971 for the uninsured.

Hospital bills were the largest single expense for about half of all medically bankrupt families, according to the survey. Prescription drugs were the largest expense for 19 percent of those families.

Of course, if the Harvard researchers were to examine bankruptcy filings today, the results would be much different. These days, bankruptcy courts are crowded with real estate brokers, speculators and home-equity borrowers. But health care cases continue to show up in the bankruptcy system.

“Mortgage problems, job losses, credit card debt and health care bills can all be a part of the economic stew in a bankruptcy filing,” said Barry Lander, clerk at the U.S. Bankruptcy Court in San Diego. “Sometimes a person can handle two or three problems but not all at once, so that if you’re unemployed or facing credit card debt and then get sick, it can push you over the edge.”

Len Ackerman, who heads American Debt Relief, a law firm in downtown San Diego, said one of his clients was pushed into bankruptcy because of her bills from fighting a series of health-related problems. She was already in debt from treatment for diabetes and high blood pressure when she was diagnosed with breast cancer this spring.

“We had to postpone her bankruptcy filing because she was in surgery,” Ackerman said. “She’s been in the hospital for the past month.”

Mark Reed, a bankruptcy attorney in Kearny Mesa, tells of a client who filed for bankruptcy after incurring a couple hundred-thousand dollars in medical bills. Because of her medical problems, she could not find work. But because she was receiving spousal-support payments from her ex-husband, she was making too much money to qualify for government assistance.

“What I’ve seen is mostly people who don’t have insurance or people who have insurance but don’t have enough to cover their medical bills,” Reed said. He worries that the current rise in unemployment will lead to more health-related bankruptcies.

“A lot of people losing their jobs end up with no insurance,” Reed said. “Many can’t afford COBRA (a government-created program that allows laid-off workers to temporarily retain their former insurance at full cost). They end up paying for their health care on credit cards. A lot of the credit card bankruptcies we’re seeing these days include bills related to health care.”

A recent poll by the Deloitte Center for Health Solutions, part of the Deloitte LLP international consulting firm, shows that 94 percent of respondents believe health care costs are a threat to their personal financial security.

According to the poll, one of eight had serious problems paying or were unable to pay their medical bills. A similar percentage had to choose between paying for health care and paying for other essentials, such as food and rent. Nearly one household in four has a person who has postponed paying their medical bills by 90 days or more.

“The results of this study are conclusive: Consumers want better performance from their health care system,” said Paul Keckley, executive director of the Deloitte center.

“They think (the system) is wasteful, inefficient, complex and expensive,” Keckley said. “They want better value for the dollars they spend and believe fundamental changes are necessary to achieve these goals.”

These studies would seem to provide ammunition for forces in the White House and on Capitol Hill that are now pushing to reform the Medicare system.

But Steffie Woolhandler, a Harvard doctor who helped conduct the bankruptcy study, said that some of the proposed reforms – such as requiring uninsured people to pay for insurance or face a fine – might be worse than the current system.

Woolhandler notes that such a system, as currently envisioned, could include a monthly payment amounting to hundreds of dollars combined with deductions in the thousands of dollars – enough to push some patients into bankruptcy.

“With that kind of system, you may get the numbers of uninsured people down, but it won’t solve the affordability problems in health care,” she said.

Woolhandler, like many other members of the Harvard team, advocates a Canada-style single-payer system. That idea has not gained much traction on Capitol Hill, although Congress has recently begun discussing the idea.

Just last week, at a House subcommittee hearing on health affairs, San Diego registered nurse Geri Jenkins, co-president of the California Nurses Association/National Nurses Organizing Committee, was on a panel of speakers testifying on behalf of a single-payer system.

Regardless of what form the health care reform eventually takes, the Harvard study should inspire Congress to craft a program that will mean fewer people have to imperil their wealth in order to save their health.