COST: Help For Those Struggling With Medical Debt

Health care and bankruptcy. The two really shouldn't go hand in hand. Too often they do.

The Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts held a hearing on medical bankruptcy earlier this week, "Medical Debt: Can Bankruptcy Reform Facilitate a Fresh Start?" Subcommittee chairman Sen. Sheldon Whitehouse (D-RI) introduced legislation that would make filing for bankruptcy less difficult for Americans with significant medical debt. His legislation, the Medical Bankruptcy Fairness Act of 2009, would also make it easier for those in medical bankruptcy to keep their homes, according to BNA (subscription required).

As we've mentioned before, studies estimate the medical bills contribute to one half (or more) of all bankruptcies -- in 2001, approximately two million Americans experienced medical bankruptcy. According to a 2007 study in the American Journal of Medicine, medical bankruptcies contributed to 62 percent of all bankruptcies in the U.S., 78 percent of those filing for medical bankruptcy had insurance -- and most were middle class, college-educated, and owned their own homes. Crushing medical debt takes a huge toll on families and individuals. Many are forced to choose -- between paying for health care, or keeping their home. Or pay for food and utilities.

Kerry Burns shared her experience with the committee. She and her husband lost everything trying to take care of their sick son Finnegan, who spent more than a year in the hospital and died before he turned five. During his illness, the Burns quickly moved from Rhode Island to Washington, D.C., to be with their son and had to quit working. Though a majority of Finnegan's care was covered via a patchwork of employer-based insurance, COBRA, and state sponsored care, the costs still overwhelmed the Burns. When unemployment benefits, temporary disability income, and their retirement funds ran out, they resorted to selling personal belongings and their second car. Eventually, they lost their home.

The Burns could barely afford gas to get back to Rhode Island, and had to borrow the money to officially file for bankruptcy. In her testimony, Ms. Burns told the committee she felt humiliated by the mandatory online credit counseling course, which asked questions such as why they were going bankrupt and what they could have done to avoid the situation.

Sen. Jeff Sessions (R-AL) argued the Burns are eligible for Chapter 7 bankruptcy filing (for those with extraordinary medical debts). In her testimony, Elizabeth Edwards, a senior fellow at CAP, drew on her previous experience in bankruptcy law and explained the barriers to actually filing for Chapter 7. The Burns, with their severely limited resources, illustrate this point. People who are uninsured or underinsured, or suffer from long-term illness, often have no safety net to fall back on when they get sick, said Edwards. She argued Sen. Whitehouse's legislation would make it easier for people like the Burns to access the Chapter 7 bankruptcy filing, keep their home, and bypass hurtful and burdensome credit counseling requirements.

Diana Furchtgott-Roth of the Hudson Institute and Aparna Marthur from AEI took issue with the studies calculating the rates of medical bankruptcy, and both argued broader health reform was necessary to prevent medical bankruptcy. John A.E. Pottow of the University of Michigan Law School suggested medical debt related bankruptcies could be even higher, when you factor in credit card debt for those paying medical bills with credit cards. As Elizabeth Edwards said in her testimony,

Until our nation implements systemic health reform -- and ensures that coverage and care are truly affordable -- we must open new avenues for families struggling under crushing medical debts.