By Reed Abelson

Sometimes, all it takes is one bad fall for a working person with health insurance to be pushed into bankruptcy.

Hundreds of thousands of Americans file for personal bankruptcy each year because of medical bills – even though they have health insurance, according to a new study by Harvard University legal and medical researchers.

“It doesn’t take a medical catastrophe to create a financial catastrophe,” said Elizabeth Warren, a Harvard law professor who studies bankruptcy and is one of the authors of the study.

The study, which is scheduled to appear today on the Web site of Health Affairs, an academic journal, provides a glimpse into a little-researched area connecting bankruptcy and medical costs. About 30 percent of people said they filed for bankruptcy because of an illness or injury, even though most of them had health insurance when they first got sick.

Many lost their jobs – and their insurance – because they got sick, while others faced thousands of dollars in co-payments and deductibles and for services not covered by their insurance.

One person cited in the bankruptcy study, for example, broke a leg, missed a couple of months of work and then had $13,000 in unpaid medical bills, though his employer-based health plan had already paid for much of his care, Ms. Warren said.

Another respondent to the survey was able to pay for hospital stays for lung surgery and a heart attack but could not return to his old job. When he found a new job, he was denied coverage because of his pre-existing conditions, which continued to require costly medical care and contributed to his bankruptcy.

Policy analysts say these findings underscore the limitations of the nation’s current system of providing health insurance largely through employers. Some argue that even for those with insurance, benefits can be ephemeral.

“You can lose it because it’s tied to employment,” said Joseph Antos, a health policy researcher with the American Enterprise Institute, who said people were also at risk if their employers went out of business.

To understand the effect of illness or injury on bankruptcy, the researchers surveyed 1,771 people who filed for bankruptcy in 2001 and interviewed 931 of them. They discovered a complex web of factors leading to bankruptcy, particularly as illness caused people to lose their jobs or cut back the hours they worked just as they were facing high medical bills.

Many of those families, Ms. Warren said, then “endured a one-two punch.”

The researchers examined those who specifically reported that their bankruptcies were precipitated by financial burdens caused by medical illness. They also included in a broader category of medical-related bankruptcy people who had more than $1,000 in unpaid medical bills at the time of the bankruptcy filing or had mortgaged their home to pay those bills.

The researchers acknowledged that often there was no single reason why someone went bankrupt. “There’s definitely overlapping reasons,” said Steffie Woolhandler, an associate professor of medicine at Harvard and one of the authors of the report.

They also pointed to gaps in coverage that left people vulnerable to financial crisis – particularly when workers switched jobs or were temporarily unable to afford contributions to a health plan. The high cost of continuing coverage under Cobra, the federal rule that allows former employees to stay on health plans for a time if they pay the entire cost, “is a cruel joke to these people,” Ms. Warren said.

Even when people remain insured, the study also notes that many health plans have limits on certain kinds of coverage, like physical therapy or prescription drugs.

“If you’re sick enough long enough, you’re in deep trouble in our society,” said David Himmelstein, an associate professor of medicine at Harvard Medical School, another of the study’s authors.

While some policies do offer catastrophic coverage, which pays for care after costs reach a certain threshold, Dr. Himmelstein said that coverage “often kicks in after people are bankrupted” because they must incur high medical bills to qualify.

And employees, who often have little choice of plans and frequently do not understand the differences among plans, are increasingly offered policies with less and less coverage, some policy analysts say.

“There’s a race to the bottom in terms of what health insurance means today,” said Ron Pollack, the executive director of Families USA, a consumer advocacy group in Washington.

This area is ripe for additional research, said Uwe E. Reinhardt, a professor at Princeton University, who said that there had not been enough hard evidence about working Americans who became ill and then went broke. “We put together vignettes, but they are not powerful enough,” he said.

The findings also raise questions about the effect of asking employees to bear a greater share of health cost through higher co-payments and the like. Many employers are shifting the increasing cost of care onto their employees, arguing that that trend gives workers an incentive to make judicious use of health care. But the researchers say higher co-payments and deductibles may well exacerbate the problem of medical bankruptcies.

Cornelia Dean contributed reporting for this article.

Kaiser Daily Health Policy Report
Wednesday, February 02, 2005
Coverage & Access

Medical Conditions, Resulting Financial Issues Contributed to Half of Bankruptcies in 2001, Study Says

About half of bankruptcies filed in 2001 were because of medical bills, according to a study published Wednesday on the Health Affairs Web site, the Chicago Tribune reports (Rubin, Chicago Tribune, 2/2). For the study, researchers from Harvard Medical School and Harvard Law School surveyed 1,771 U.S. residents who filed for bankruptcy in 2001 and interviewed 931 of them (Abelson, New York Times, 2/2). People interviewed had cases involving injury or illness, unpaid medical bills of more than $1,000 in the two years prior to filing for bankruptcy, loss of two weeks of work because of illness or injury or mortgaging of a home to pay medical bills, the Los Angeles Times reports (Dickerson, Los Angeles Times, 2/2). According to the study, 46.2% of people reporting bankruptcy in 2001 cited illness and medical bills as the cause. The rate rose to 54.5% when births, deaths and gambling addictions were considered as factors, the AP/San Jose Mercury News reports (Jewell, AP/San Jose Mercury News, 2/2). The number of bankruptcies filed in the United States tripled between 1980 and 2001, to nearly 1.5 million couples and individuals. The number of medical-related bankruptcies increased twenty-threefold during that period, the study says (Los Angeles Times, 2/2).

More Findings

According to Steffie Woolhandler, one of the study authors and a doctor at Cambridge Hospital, 76% of people who had a medical-related bankruptcy had health insurance when they first became ill (Kowalczyk, Boston Globe, 2/2). According to the study, 38% of those who filed for bankruptcy lost their health coverage at least temporarily by the time they had declared bankruptcy (AP/San Jose Mercury News, 2/2). Most of those who filed for bankruptcy because of medical costs were middle-income homeowners, the study indicates (Los Angeles Times, 2/2). For people filing bankruptcy, out-of-pocket medical costs averaged $13,460 for those who had health insurance, compared with an average of $10,893 for the uninsured, the study says. The highest costs — $18,005 on average — were incurred by people who had private health coverage at the beginning of their illness but later lost it, according to the study. For patients with cancer, average out-of-pocket costs were $35,878, the study finds (Kerr, Long Island Newsday, 2/2). The study also says that employer-sponsored health insurance does not seem to shield families from high medical costs because an illness can lead to job loss and loss of health coverage, the Los Angeles Times reports. In addition, people who cited medical bills as a cause for filing bankruptcy were more likely than others to have experienced a gap in health coverage because of costs or because they switched to a new plan and then lost coverage because of pre-existing medical conditions, the study says. In addition, about 33% of those who filed for bankruptcy because of medical costs said they still have difficulty paying bills, such as mortgages, utilities and rent (Los Angeles Times, 2/2).

Researchers’ Reaction

Elizabeth Warren, a Harvard law professor and one of the study’s authors, said, “It doesn’t take a medical catastrophe to create a financial catastrophe” (New York Times, 2/2). Woolhandler said, “A larger share of American workers are going to have insurance that’s like a paper umbrella. It looks good, and it might even protect you in a sprinkle, but it melts away in a downpour” (Rackl, Chicago Sun-Times, 2/2). David Himmelstein, another author and Harvard Medical School professor, said, “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who just happened to get sick. Health insurance offered little protection” (Rapaport, Sacramento Bee, 2/2). Warren said, “These are hard-working, ‘play-by-the-rules’ people who have health insurance and have discovered that they were just one bad diagnosis away from financial catastrophe. I think that’s the real heart of the story. This is about people who thought they were all safe” (Los Angeles Times, 2/2). Woolhandler said, “We need to rethink health reform. Covering the uninsured is not enough. We also must upgrade and guarantee continuous coverage for those who have insurance” (AP/San Jose Mercury News, 2/2). The Tribune reports that Himmelstein and Woolhandler, who are married, are co-founders of Physicians for a National Health Program, a group that advocates a national health insurance system (Chicago Tribune, 2/2).

Other Reaction

Some health policy analysts said they believe the findings highlight the “limitations” of the employer-based health insurance system, according to the New York Times. For instance, as employers shift more health care costs to workers, increasing copayments and deductibles could exacerbate the problem of medical-related bankruptcies, the Times reports. Joseph Antos, a health policy researcher with the American Enterprise Institute, said, “You can lose [health insurance] because it’s tied to employment” (New York Times, 2/2). Attorney Andrew Thaler, a bankruptcy trustee in New York, said that “a lot of people are having to file bankruptcy because of medical reasons. Lots of times people with medical debts will have other debts as well” (Long Island Newsday, 2/2). Greg Scandlen, director of the Galen Institute, said, “I don’t doubt there are people who lose their jobs due to a medical problem and hence lose their income and insurance. But this ‘study’ tells us absolutely nothing about those people because it is trying so hard to exaggerate the problem” (Chicago Tribune, 2/2).
The study is available online.

We dare not follow
Bush, Frist, Thomas have healthcare dreams
others might call nightmares
 
Story originally published January 31, 2005
Written by Todd Sloane, Assistant Managing Editor Op/Ed Modern HealthCare
 
 
Visionaries see problems differently than the rest of us, conjuring up solutions we ordinary folks could never divine. These are essential people, and yet there are times to beware of them, such as when they are thinking of running for president or are feeling the pressure of term limits. At such times be very cautious about following them. You could fall off a cliff.

Healthcare providers and their patients are treading close to such an abyss. President Bush, Senate Majority Leader Bill Frist (R-Tenn.) and House Ways and Means Committee Chairman Bill Thomas (R-Calif.) are dreaming the dreams of men with near absolute power and a short deadline.

Frist, who has promised to retire from the Senate in 2006, may be floating a bit higher than the others, having recently revealed his vision of healthcare in the year 2015 in of all places the New England Journal of Medicine. His alien dream is filled with accounts of injected nanorobots that detect and fix cancers and implanted radio frequency devices that continuously monitor goings on in our abdomens. At the head of this brave new healthcare system is the informed public, presumably the same erudite masses that would send the good Dr. Frist to the White House in 2008.

Not all of his visions are out of “Fantastic Voyage.” He returns to terra firma long enough to call for an end to tax incentives for employers who offer health coverage, which would effectively end that insurance system. The credits would go to those all-powerful individual citizens, who would brave the private insurance market armed with the latest outcomes and clinical research data. Mind you, he has no plans to end the current discrimination in that market against anyone who has actually been sick. Bemoaning the fact that the average family policy now costs $9,000 per year, Frist wants to come to the rescue by promoting health savings accounts as a panacea. It seems that paying a far lower premium but shelling out $5,000 to $10,000 from your pocket for these catastrophic policies is much more “empowering.”

Thomas’ ideas come wrapped in less interstellar prose, but the net effect is much the same. The chairman, who would lose his coveted post under House Republican rules in 2007, has his eye on the infernal payroll tax that funds Medicare and Social Security. The tax discourages hiring, Thomas says, and he hints at lowering it or scrapping it in favor of an income tax, either of which would lead to cuts in benefits or an increase in the retirement age. A less onerous method of trimming Medicare costs, of course, would be to allow HHS to negotiate prices for the new prescription-drug benefit with drug companies, but that is off the table. Apparently, the “ownership society” that conservatives love to talk about does not allow for such government interference, even in a marketplace the government itself established.

President Bush, meanwhile, still has Medicaid firmly in his rifle sights as he staves off the lame-duck label. His brother Jeb has proposed privatizing the program in Florida, handing poor beneficiaries a check they can use to brave the managed-care market, which I am sure will be thrilled to have them. The prez won’t go that far on a national basis, but he will try to cap spending on a program that has been rising in cost but at a significantly lower rate than overall health spending. His favorite buzzword here is “flexibility” for state programs, a word that for providers and patients translates roughly to “screwed.”

All these visions have me swooning, a state that many providers may be experiencing as well. I wonder if my employer-sponsored insurance plan covers this condition. If you have a health savings account, you may want to just lie down.