5.2 - Bankrupt Families
Zach’s mom, Sharon, first had an inkling that something wasn’t quite right with her son when he was three months old. Zach got bronchiolitis, an upper respiratory tract infection that inflames the small passageways in the lungs. “It was so bad, and lasted for so long. I mean he was sick for months,” recalls Sharon.
But it wasn’t until Zach was seven years old—after six years of regular doctor visits, countless surgeries, IV antibiotics, and months and months of oral antibiotics, as well as intestinal problems that at one point had him waking up every night to throw up—that it really became clear what was going on with him.
During those first several years of his life, Zach often ended up in the doctor’s office at least once a week. Sharon and her family had health insurance that covered the entire family, but the co-pays, deductibles, and other costs added up. Sharon calculates that her family’s out-of-pocket medical expenses each year ranged from as low as $14,000 to as high as $23,000 in 2004.
Sharon explains how this happened even though they are covered by insurance, “If you go to the doctor once a week, and take seven different medicines a week, you can do the math and see that it costs more than a car payment each month. That’s not including if he needs a surgery, a chest X-ray, a CAT scan, or something else.” All of these medical issues involve co-pays, deductibles, and other costs that add up over time.
During Zach’s lengthy illnesses, Sharon’s husband, Arnold, kept requesting more and more hours at work to keep up with the constant flow of medical bills. Arnold works for a heating and electrical company located in the Indiana area where they live, and as Sharon says, works as much as possible, “They usually cut him off somewhere between seventy and eighty hours per week.” He was working hard to keep the family financially afloat, making about $65,000 per year. Sharon, a full-time mom, was busy at home caring for Zach and his two younger sisters, Dakota and Jessica.
by Elizabeth Warren, Professor, Harvard Law School, and Amelia Warren Tyagi, co-authors of The Two-Income Trap: Why Middle Class Parents are Going Broke
Having a child is now the single best predictor that a woman will go bankrupt. In fact, this year, more children will live through their parents’ bankruptcy than their parents’ divorce.
The causes for so much financial distress among parents are complex, but one fact stands out: Fully half of these families filed for bankruptcy in the wake of a medical problem.
The typical medical bankruptcy is solidly middle class. Most have been to college, gotten decent jobs, and bought homes. And they even bought health insurance—about three-quarters of medical bankruptcies had medical coverage when illness struck.
Medical bankruptcies look pretty much like other middle-class Americans, with one notable exception: They have children. A family with children is now about three times more likely to file for bankruptcy than their childless counterparts.
Health insurance with holes wide enough to drive a bus through has caused some of the problem, as many families discover the real meaning of the fine print only after they have been denied coverage. Co-pays and uncovered services can also leave a family struggling with thousands of dollars in medical bills. And for the forty-three million Americans with no insurance, even a broken arm or an appendectomy can put a family in a deep financial hole.
Even when health insurance covers most of the doctor and pharmacy bills, families can find themselves caught in another financial nightmare— lost income. The majority of workers have no long-term disability insurance, which means that when a serious illness strikes and they are no longer able to work, they simply do without a paycheck. That might be tolerable for those families with ample savings, but today’s middle class families essentially live paycheck to paycheck. Even if medical diagnosis is favorable, there may be little hope of financial recovery.
Every thirty seconds in the United States, someone files for bankruptcy in the aftermath of a serious health problem. Time is running out. A broken healthcare system is bankrupting families across this country.
Finally, about a year ago, Zach contracted a sinus infection that lasted from November through March, which left him on antibiotics for five full months. Because insurance balked at covering more antibiotics, the doctor administered the medication through an IV line just to get around insurance restrictions. Sharon recalls, “The doctors were talking about flushing Zach’s sinuses every time he had a sinus infection—and that involves surgery.” More costly procedures were adding up, and Zach wasn’t getting any better.
Sharon schedules Zach’s visits to medical specialists all on the same day to save trips to the hospital. On the day they received the news that the sinus infection was still raging, they also had a visit with Zach’s digestive specialist.
It had been a stressful day of CAT scans, IVs, and other procedures. By the time Zach and Sharon got to the digestive specialist’s office Sharon was overwhelmed, “The doctor asked, ‘How’s everything going?’ and I just lost it and started crying. I said, ‘He’s been sick for so long. I don’t see how he can keep going like this forever.’ The doctor responded, ‘It’s not my field, but it sounds like an immune problem to me.’
In the end, his digestive doctor is the one who figured out that Zach had an immune deficiency which caused him to get sick over and over again. The good news was that there was a treatment for this disease, once a month intravenous infusions of gamma globulin. The bad news was that after the insurance company paid what they cover, the medicine still costs $5,000 in of out-of-pocket expenses each year.
At this point, the family—fully insured, with Sharon’s husband basically working the equivalent of two full-time jobs— was losing the battle of the medical bills. “When Zach was diagnosed with a primary immune deficiency, we knew it wasn’t going to end,” Sharon recalls. “We already had remortgaged our house to pay for medical bills—so when we found out how much the new treatment was going to cost, we knew we couldn’t pay our higher mortgage payment, the cost of his medicines, and other costs every month.” That was the breaking point.
Sharon and Arnold finally waved the white flag of surrender when it became clear that there simply weren’t enough hours in the workweek to keep up with the constant incoming flow of bills. They made an appointment with an attorney to declare bankruptcy.
Their attorney’s office was in downtown Indianapolis. After checking in with the receptionist, Sharon and Arnold were ushered to a large conference room that had two walls of windows, and another wall with shelves of law books from floor to ceiling. They settled down into comfortable chairs around a conference table and told the attorney their story, sharing all their raw feelings of despair that came from working hard, having a sick child, and still losing everything, “The attorney cried when we told him what had been happening with us. My husband really needed that because when we went there it was just breaking him. His theory was that he could just keep working more.” But there weren’t any more hours in the week left to work.
Medical issues are a leading cause of bankruptcy in the United States. A February 2005 study published in the journal Health Affairs, authored by a well-respected team of experts that includes several Harvard University professors, found that families like Sharon’s are part of a growing trend of medical bankruptcies. 2 In fact, half of all bankruptcy filings in 2001 were related to medical issues.
And medical related bankruptcies are skyrocketing. There’s been a twenty-threefold (2,300 percent) increase in medical related bankruptcy filings between 1981, when only 8 percent of bankruptcies were medical related, and 2001.3 And, it turns out, these medical related bankruptcies look a lot like what Sharon’s family experienced—most of those who went bankrupt had health insurance (a full 76 percent had insurance when their illness started),4 and those filing for bankruptcy are “predominantly in the middle or working classes.”5 In other words, it’s mostly hard-working families with insurance that end up in bankruptcy as they deal with medical issues.
“Our study is frightening. Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy,” notes Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard in a Harvard Medical School Office of Public Affairs press release. “Most of the medically bankrupt were average Americans who happened to get sick. Health insurance offered little protection. Families with coverage faced unaffordable co-payments, deductibles, and bills for uncovered items like physical therapy, psychiatric care, and prescription drugs. And even the best job-based health insurance often vanished when prolonged illness caused job loss precisely when families needed it most. Too often, private health insurance is an umbrella that melts in the rain.”6
After Sharon, Arnold, and Zach’s story ran in the New York Times in October 2005,7 the drug company dropped the $5,000 annual bill for uncompensated costs, and other help came their way. They are still in danger of losing their house, which is in foreclosure due to the bankruptcy, but the family is starting to save money again. Sharon concludes, “I’m going to seriously knock on wood. I can’t imagine us being in the same situation now that our medical bills are covered.”
Making it to the front page of the newspaper is not a viable solution for the other two million debtors and their dependents that experienced bankruptcies related to medical problems in 2001.8 “Families with children were especially hard hit,” notes the news release about the study put out by the Harvard Medical School Office of Public Affairs.9 It continues, “—about 700,000 children lived in families that declared bankruptcy in the aftermath of serious medical problems.” Something has to give.
