Your Money or Your Life
When getting sick means going
by Dan Frosch
The Nation magazine, February
Five long years ago, Rose Shaffer's life
seemed sweet. A nurse since the early 1970s, Shaffer had spent
most of her sixty 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
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 porch. 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 portion 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
Woothandler 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 February 2 by
the medical policy journal Health Affairs, found that between
1981 and 2001, medical-related bankruptcies increased by 2,200
percent, an astonishing 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,
"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 Washington
is in the opposite direction-toward bankruptcy "reform"
that would make things worse for people who have been financially
ruined by illness.
Until twenty-five 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 fifteen 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
home-owning 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 porous
to provide a real buffer against the financial burden of a serious
"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
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, New Mexico, 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 myeloplysplastic
syndrome, a bone marrow disease that can cause leukemia. Phil
retired and began collecting $1,080 a month in Social Security
"I still had a good paying job with
insurance that could cover us both, so I thought we'd be 0K' Judy
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
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
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 portion 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 pushing 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 Senator Chuck Grassley, buoyed by Republican
Congressional gains and past support 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 circumstances."
Jim Manley, Reid's communications director,
says Reid will support 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 antichoice, nonetheless opposes).
Such a provision was added to the 2002 version of the bill in
an attempt to give political cover to Democrats (including Senators
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 hardship, which makes it hard
to believe they are simply shirking 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
important 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 seventeen).
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 fifty-nine
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 report'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
"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 refilling. 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,"
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 shift 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 pushing debtors toward lenders and
hospital-sponsored credit cards. And the bankruptcy reform pending
in Congress could hurl many more middle-class Americans into lifelong
Rose Shaffer, for one, is still reeling.
She works two nursing jobs, seven days a week for nearly sixty
hours, so she can make the monthly $2,088 in Chapter 13 payments
she still owes. Advocate has yet to claim its portion, but Shaffer's
credit is severely damaged and will be for the next decade. She's
praying her eleven-year-old car will make it through the Chicago
"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
Dan Frosch is an independent journalist
based in New York City. He's been on staff at the San Gabriel
Valley Weekly section of the Los Angeles Times, The Source magazine
and most recently the Santa Fe Reporter. His work has also appeared
in In These Times, AlterNet, VIBE and the Washington City Paper.
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