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Medical bills pave way to poorhouse, study says

Many bankruptcies linked to illness

By Bonnie Miller Rubin
Tribune staff reporter

February 2, 2005

Medical bills may lurk behind about half of personal bankruptcy filings in the United States, according to Harvard University researchers who also found a majority of the debtors they surveyed were middle-class, owned homes and had health insurance at the onset of their illness.

The study, to be published Wednesday in the journal Health Affairs, examined personal bankruptcy filings from 2001 in five federal court districts, including Illinois.

"Our study is fairly shocking," said Dr. Steffie Woolhandler, an associate professor of medicine at Harvard Medical School and a primary-care physician. "We found that, too often, private health insurance is an umbrella that melts in the rain."

For many, health problems set in motion a downward spiral that led to unemployment and subsequently the loss of health insurance, Woolhandler said. Or, their coverage was filled with so many high co-payments, deductibles and uncovered services that they couldn't pay their bills. Out-of-pocket expenses averaged $11,854 for the medically bankrupt.

While that may not sound like a catastrophic sum, the authors note that many of the debtors lost their jobs because of the medical problems. "It's an awful lot of money to pay if your income has been reduced because you're too sick to work," said Woolhandler.

Suzanne Gibbons knows how a prolonged illness can lead to financial ruin. Following a stroke, heart disease and other complications, the 58-year-old nurse found herself owing tens of thousands of dollars despite having health insurance.

"When the bills started coming in, I was looking around for `Candid Camera,'" said Gibbons, who eventually lost her Northwest Side home and filed for bankruptcy in 2001.

The study suggests hers is a common scenario that also bucks the conventional wisdom that most bankruptcies happen to people who simply cannot control their spending.

931 in-depth interviews

With the cooperation of bankruptcy judges, the researchers reviewed the court records of 1,771 filers in the Illinois, California, Pennsylvania, Texas and Tennessee districts. Of those, 931 underwent more in-depth interviews.

The researchers found that medical bills contributed to at least 46 percent and as much as 54 percent of the filings. (The lower figure excludes psychiatric illnesses.)

Woolhandler believes the problem has only gotten worse since 2001 as the number of bankruptcies increases.

The researchers describe the people who sought bankruptcy protection for medical reasons as "typical Americans who got sick." Of those surveyed, 56 percent owned their own home and the same percentage had attended college.

In the two years before they filed for bankruptcy, one-third reported having a utility shut off, half said they had failed to fill a prescription and about 60 percent skipped necessary medical care, all in an effort to tighten their belts.

The study cites several examples of people who were buried under a pile of medical bills, including one man who underwent lung surgery and suffered a heart attack. Though his insurance covered those expenses, he was unable to continue in his physically demanding job. After finding a new job, he was denied coverage because of his pre-existing conditions.

Then there was the man who suffered a broken leg and torn knee ligaments and had to ante up $13,000 for not-covered services such as physical therapy.

The findings indicate that the national debate on health-care reform needs to address not only the woes of the uninsured but also flaws in the coverage provided by employers, Woolhandler said. "It can't be stripped-down plans that are full of loopholes that can be canceled if you're too sick to work," she said.

At least one critic denounced the study as nonsense, citing the researchers' advocacy work and also taking issue with their definition of what constitutes a medical bankruptcy.

Woolhandler and her husband, Dr. David Himmelstein, lead author of the study, are co-founders of Physicians for a National Health Program, a not-for-profit organization that supports national health insurance.

"I don't doubt there are people who lose their jobs due to a medical problem and hence lose their income and their insurance," said Greg Scandlen, director of the Galen Institute, a research organization that promotes market-based health solutions. "But this `study' tells us absolutely nothing about those people because it is trying so hard to exaggerate the problem."

The more market-driven approach has been embraced by Republican leaders. Flush with success following the November elections, they hope to shift more of the responsibility for major medical costs away from employers and onto individuals. If they succeed, workers would carry insurance for major medical needs but absorb more routine health-care expenses through tax-free health savings accounts. President Bush, Senate Majority Leader Bill Frist (R-Tenn.) and others assert that Americans would be more prudent health-care consumers if they--not their companies--were picking up the tab.

Suzanne Gibbons' health problems started in 1991, following a stroke at age 44. "It affected my left side, but I was always able to work ... always able to pull my own weight," Gibbons said.

But in June 2000, she was hospitalized at Our Lady or Resurrection Hospital for a bowel obstruction and a stroke. The bill for her five-day stay was $53,000, of which only $4,000 was covered by her insurer.

$26 a week, for what?

"If it was so bad, how come it cost $26 a week?" she said of her insurance. "I could have gotten the same thing out of the Reader's Digest."

Because of her illness, Gibbons quit her full-time nursing job and could only work between 20 and 24 hours a week for a temp agency. That not only left her uninsured when her hours dropped below a minimum number, but also shrank her income considerably.

But her expenses, including mortgage and car payments, made it difficult to chip away at her five-figure hospital bill, which was turned over to a collection agency. Gibbons said she paid $200 per month until the hospital told her that was not acceptable and asked for $500 a month, which she soon was unable to pay.

"I knew I had to take care of myself," Gibbons said. "I had some retirement savings. ... I had bought a house, because I knew it would be an asset later in life."

About a year after her original hospitalization, Gibbons experienced severe chest pains. Because she was broke, she directed the ambulance to take her to Stroger Hospital, but ambulances are required by state law to take patients to the nearest hospital: Our Lady of Resurrection, adding an additional $21,000 to her tab.

The hospital filed a lawsuit against her in October 2001. Subsequently, she filed Chapter 7 bankruptcy, sold her home where she had lived for 18 years and moved to a small apartment.

"At least when I was paying $200, the hospital would get something. ... Now, I don't have a house, and they don't get paid. The only ones making money now are the lawyers."

Researchers uncovered hundreds of stories like Gibbons', said Himmelstein, who is also an associate professor of medicine at Harvard and a physician in Cambridge, Mass. (The other two authors are Elizabeth Warren, a professor at Harvard Law School, and Deborah Thorne, an assistant professor of sociology at Ohio University).

Those who are pushing more consumer-driven solutions "should comparison shop ER prices the next time they have chest pains," he said.

"The idea that consumer-driven health care is going to solve the fact that a whole lot of people are in trouble is a bizarre claim. ... Unless you're Bill Gates, you're just one serious illness away from bankruptcy."