Soaring Medical Bills Squeeze Families

Four years ago, Candice Jackson, then 12, racked up about $90,000 in uncovered medical bills because an uninsured driver hit her while she was getting off a school bus in Windthorst, Texas. She spent four months in the hospital. The ambulance ride alone was cost some $10,000. Meanwhile, her mom needed two knees, adding another $20,000 or so to the family's medical bills. This April, Candice, now 16, swerved off the road to miss a deer and wound up with another head injury which required brain surgery. Candice's dad, Lanny Jackson, who works in the service center of a car dealership, can't even guess what the total cost of Candice's latest mishap will be. Overwhelmed, he is filling out the paperwork to file for bankruptcy. He feels as though he's in a hole, with no way out. "We're just a normal, small-town family with solid values," he says. "You get to your limit."

The Jacksons, while particularly unlucky, are hardly alone in their struggle to manage their medical bills. Health-care debts typically play a role in about half of the approximately 1.5 million bankruptcies filed in the United States each year, according to Harvard researchers Elizabeth Warren and David U. Himmelstein. And, like the Jacksons, 75 percent of those who declare medical bankruptcy have health insurance at the onset of the illness that ultimately helped to push them over the financial edge, according to the Harvard research.

Those alarming figures have been disputed by David Dranove, a professor at Northwestern University's Kellogg School of Management. He says only 17 percent of respondents in the Harvard study directly said that medical spending was a cause of their bankruptcy. "They included in this category anyone who had medical bills of more than $1,000. You might as well say that every purchase over $1,000 caused their bankruptcy," he adds. (America's Health Insurance Plans, an industry trade group, paid for the time Dranove spent re-analyzing the Harvard data.)

But even if the extent of the impact of medical bills on bankruptcy filings is up for debate—and Dranove is one of the few experts who dispute the Harvard figures—it's clear that many families are shouldering more of their health-care costs than ever before. "The co-pays and deductibles are becoming so big that even if you have insurance, you can still have a lot of medical debt," says Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. "Having insurance isn't enough." Ron Pollack, executive director of the not-for-profit consumer health-care advocacy group, Families USA agrees: "With each passing year, the coverage people are receiving requires more in premiums, deductibles and out-of-pocket costs ... Employer-provided coverage is increasingly requiring workers to pay larger portions of the costs and provides fewer benefits."

Today, 46 million Americans are uninsured. And 53 percent of adults who were uninsured at any time during 2005 reported medical debt or bill problems, according to a Commonwealth Fund Health Insurance survey this spring. But medical debt is not limited to the uninsured. One-fifth of working-age adults, both insured and uninsured, currently have medical debt they're paying off over time; and three of five adults with medical bills or debt problems said they were insured at the time the debt was incurred, according to the Commonwealth survey.

Part of the problem: Americans are living longer. The life expectancy at birth for a woman born in 1900 was just 49; for a woman born in 2000, it was 80. "If you died at 40, health-care costs were not the same issue," says University of Pennsylvania law professor David Skeel, a scholar-in-residence at the American Bankruptcy Institute. "Your biggest medical bills are in your final stages of life." Medical bankruptcy is a modern-day problem. "Thirty years ago, families didn't go bankrupt over an illness," says Warren, the Harvard law professor. "Today people survive illness and accidents that would have killed them a generation ago." Modern medicine is a double-edged sword. "It can make the body well but leave the family financially devastated," says Warren. "Now single doses of some medications cost $300. Who can afford to be sick in America?"

Americans are taking out home-equity lines of credit, using credit cards, and cashing out retirement accounts to pay for medical expenses. Carlos Carranza, 49, a former toll-collection supervisor at the Dallas-Fort Worth toll way, is dipping into his 401-K accounts to pay for doctors' visits since he suffered a debilitating stroke last year. He's trying to get long-term disability (half his old salary of $52,000) and hopes to return to the toll way, although the stroke affected his memory and his ability to distinguish $1 bills from $10 bills. This year he filed for bankruptcy because the stroke left him with no job, large expenses and no insurance. He had $25,000 in medical debt and $25,000 in credit-card debt—impossible to pay back "when you're not getting any kind of income," he says.

The solution: universal health insurance, says Warren. "Bankruptcy is a Band-Aid. It doesn't solve the underlying problem." Himmelstein, her Harvard colleague, agrees. "It needs to be coverage that continues whether or not you're sick, whether or not you're working," he says. "If you're in an auto accident today and can't work for six months, how many Americans could actually withstand that as a disaster in their lives?" Too many Americans lack a safety cushion for expensive medical costs. "There are just so many people who live so on the edge that medical emergencies can just spin them over that edge," says Brett Williams, author of "Debt for Sale: A Social History of the Credit Trap." "They skimp on things that are ultimately cheaper, like screenings. Or diabetics will skimp on insulin. Then amputations end up being so much more expensive." But Northwestern's Dranove disagrees: "Why should we have national health insurance any more than we should pay for food or housing if everything is causing bankruptcy?"

The elderly are particularly hard hit because they often lack a significant income at the same time that they need more medical care and more medication. "They've got high fixed expenses, and they don't have lots of income," says Skeel. Medicare provides prescription drug coverage-but with a huge gap called the "donut hole," which forces seniors to pay 100 percent of the costs of their drugs between $2,250 and $5,100 in purchases in a year.

Kathryn Lopez, 67, and her husband, Conrad, 68, spend at least $150 a month on prescriptions, though they pay $260 for Medicare with a supplement. The couple now owes $47,000—despite starting their retirement with $135,000 in savings. They're in the hole largely because of large co-pays and uncovered expenses for a series of surgeries, including an operation to remove Kathryn's esophagus because of cancer and to replace Conrad's hips. He works as a restaurant manager, and she runs a bed-and-breakfast out of their home in Canyon City, Colo., but their income isn't enough to pay their medical bills—let alone buy new clothes that fit them. (They each lost about 30 percent of their body weight from all their surgeries.) Now Kathryn Lopez barters: She let some workers stay at their bed and breakfast in exchange for repairing their drain spouts. The Lopezes are getting help from a consumer credit company but do not want to file bankruptcy. "We thought he'd be retired, and we could just do a little bed and breakfast and have money to play around with and have fun," says Kathryn Lopez.

Often medical bankruptcies are the result of an illness or injury combined with the loss of a job. That's why even non-catastrophic medical problems often lead to catastrophic financial results. The median medical debt for the people in the Harvard survey: $11,000. One man in the study needed knee surgery. His insurance paid for it—but didn't cover his rehab, his drugs or his crutches. He wound up with $12,000 in out-of-pocket expenses—a problem "when you're making $40,000 and living pretty close to the edge," says Warren.

Of course, many people do not want to file for bankruptcy, even when faced with astronomical medical debts. "For every family that ends up with a medical bankruptcy, there are many more hanging on by their fingernails, selling the home, cashing out the pension, trying to make the payments for the medical care they received," says Warren. And while bankruptcy is designed to give people a fresh start, it's not much help when an expensive medical problem is ongoing. Warren recalls telling a couple whose hemophiliac child had contracted AIDS that they shouldn't file for bankruptcy until the child died.

Jerry Chapman, 61, a retired postal clerk in Mesquite, Texas, does not want to file for bankruptcy, despite owing thousands of dollars for uncovered parts of 12 surgeries she has had since 2002 (including a mastectomy and reconstruction) paying $90 a month for medications for high blood pressure, high cholesterol, anxiety and depression, and owing about $6,000 for dental work for her 16-year-old grandson, who was born without seven front teeth. To try to pay her bills, she works three days a week moving cars for a rental-car company. Through a consumer credit counseling service, she pays $389 a month to pay off credit-card debt that had gotten up to $14,000 on five cards.

Sometimes people believe it's too difficult or too expensive to file. "People think they no longer can go bankrupt," says Leslie Linfield, executive director of the Institute for Financial Literacy. "I'm really surprised at how prevalent that notion is out there." Congress increased the filing fee for Chapter 7 from $209 to $299—and required counseling ($50) and a credit-education course ($50). That's not even including attorney fees, which start at $500 for simple cases.

Thomas Mason, 67, says he hasn't filed "because of the cost." Mason, who had a heart attack when he was 51, says it's tough to land a job with insurance at his age and with his health history. So he works full-time as an assistant manager for a small grocery chain that doesn't offer insurance. Meanwhile, he suffers from an enlarged heart and enlarged prostate and needs surgery on both legs for blockages and varicose veins. His wife, Brenda, 52, is a type II diabetic and can't work because her health is so poor. So they squeak by on his income of $25,000 to $27,000 a year—hardly enough to pay their $12,000 to $15,000 annual expenses for doctors' visits and medicine, including insulin. Of their $12,000 in debt, $9,000 is owed to doctors. "I never lived lavishly," he says. "The things in our apartment have either been given to us, or we get at garage sales or Goodwill or Salvation Army." Unfortunately, they may be able to get free clothes—but not free medical care.