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Medical debt plays part in personal bankruptcy filings

Posted - Aug. 6, 2004 at 1:20 p.m.



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Aug. 6--Personal bankruptcies of all sorts are increasing in Pittsburgh and across the country, and federal statistics don't indicate exactly what proportion of bankruptcies stem from unpaid medical bills.

But the amount of medical debt in personal bankruptcy cases was substantial in 1999, said Melissa Jacoby, a law professor at the University of North Carolina who studies the issue. And there's reason to think the situation hasn't improved since then, as costs have climbed and the number of people lacking health insurance has grown.

Jacoby and colleagues published a study of bankruptcy filings that estimated more than 500,000 middle class families turned to the bankruptcy courts for help following an illness or injury in 1999, alone. A separate study published this summer reported that nearly 20 million American families during 2003 had trouble paying medical bills, with nearly two-thirds of those families saying the medical bills made it difficult to pay for other basic necessities.

"I think the effects of our health care system on bankruptcy have become larger than anyone would have imagined," Jacoby said.

Not everyone agrees about the nature of the problem in the Pittsburgh area.

Charles Zebley, a Uniontown attorney who serves as a trustee in bankruptcy cases, points out that medical debts are not the chief reason for most bankruptcies. Health care bills sink the ship in maybe 1 out of every 20 bankruptcies, Zebley estimated.

Even so, Zebley said: "It's a constant problem -- it's one of the reasons why people file bankruptcies."

Ken Steidl, a bankruptcy attorney in Pittsburgh, said it's a problem that he thinks is getting worse. Steidl has seen an upsurge in senior citizens paying for expensive medicines with credit cards, and then filing for bankruptcy after the bills come due.

Dennis Spyra, another bankruptcy attorney here, seconded the observation. Health care debts of $25,000 are driving some into bankruptcy, he said.

"I'm filing a lot of bankruptcies for senior citizens on fixed incomes and I can tell you that a substantial amount of the unsecured credit card debts ... are for prescriptions," Spyra said.

A study of 1,931 consumer Chapter 7 bankruptcy cases from 84 federal judicial districts in 2000 found that medical debt per debtor was relatively small at $2,582, or about 5.6 percent of the general unsecured debt. But among those with unpaid medical bills, there were 14 people in the study with huge health care debts, including one individual with $615,000 in medical bills, according to the study by the U.S. Trustee Program.

That's the sort of debt that drove Deborah Sullivan, 52, of Export and her husband into bankruptcy court earlier this year.

The Sullivans have more than $400,000 in unsecured debts, the vast majority of which are health care bills. Deborah Sullivan was diagnosed with a brain tumor two years ago and lacked insurance coverage for most of the bills.

Before the illness, the Sullivans had a monthly income as high as $4,000 or $5,000 from John Sullivan's construction business and Deborah Sullivan's part-time work. The couple is raising three teenage children.

But John Sullivan has had to cut back his hours to care for his wife and family. So, their income plummeted just when they needed it most -- Deborah Sullivan has wracked up about $300,000 in unpaid hospital bills, alone.

Today, Sullivan is cancer-free and the bankruptcy court will likely wipe away all the unpaid medical bills. Still, the family's credit is shot, and the financial stress has compounded the toll of the physical illness.

Deborah Sullivan had a health insurance policy through Highmark Blue Cross Blue Shield for years, but was told she had hit a $300,000 lifetime cap for benefits shortly after being diagnosed with the brain tumor.

A Highmark spokeswoman, while not commenting directly on Sullivan's case, said the "Complete Care" policy that Sullivan carried has a $5 million lifetime cap. When told of this conflicting information Wednesday, the Sullivans said they would contact Highmark to sort it out. But yesterday, Sullivan suffered a complication that forced her back to the hospital -- which will result in more bills she can't pay.

That's one of the problems with using the bankruptcy court as an insurer-of-last-resort for medical bills, said Jacoby, the North Carolina law professor. Consumers can file for bankruptcy only once every six years, so the court can't help with bills the Sullivans incur for the ongoing costs of medical care.

What's more, hospitals and doctors often receive nothing in a Chapter 7 bankruptcy.

"The fact that you have not paid your prior medical debts may impede your access to medical care in the future," Jacoby said. "No one would suggest that cyclically filing for bankruptcy is an answer to our health care financing problems."

One of the most disturbing aspects of the current medical debt problem in the United States is that it's not just an issue for the uninsured, said Peter Cunningham, a researcher with the Center for Studying Health System Change, which published the study this summer on health care debts. The study found that about 13.5 million families that reported trouble paying medical bills also had health insurance.

"Health care costs are just really high, and a lot of people have copayments of 10 or 20 percent," Cunningham said. "That doesn't sound like a very big deal, but if they have a major health event that requires hospitalization and follow-up care ... that can be a lot of money to most people."

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