From the Hospital to Bankruptcy Court

November 25, 2009
By KEVIN SACK

NASHVILLE — Some of the debtors sitting forlornly in this city’s old stone bankruptcy court have lost a job or gotten divorced. Others have been summoned to face their creditors because they spent mindlessly beyond their means. But all too often these days, they are there merely because they, or their children, got sick.

Wes and Katie Covington, from Smyrna, Tenn., were already in debt from a round of fertility treatments when complications with her pregnancy and surgery on his knee left them with unmanageable bills. For Christine L. Phillips of Nashville, it was a $10,000 trip to the emergency room after a car wreck, on the heels of costly operations to remove a cyst and repair a damaged nerve.

Jodie and Charlie Mullins of Dickson, Tenn., were making ends meet on his patrolman’s salary until she developed debilitating back pain that required spinal surgery and forced her to quit nursing school. As with many medical bankruptcies, they had health insurance but their policy had a $3,000 deductible and, to their surprise, covered only 80 percent of their costs.

“I always promised myself that if I ever got in trouble, I’d work two jobs to get out of it,” said Mr. Mullins, a 16-year veteran of the Dickson police force. “But it gets to the point where two or three or four jobs wouldn’t take care of it. The bills just were out of sight.”

Although statistics are elusive, there is a general sense among bankruptcy lawyers and court officials, in Nashville as elsewhere, that the share of personal bankruptcies caused by illness is growing.

In the campaign to broaden support for the overhaul of American health care, few arguments have packed as much rhetorical punch as the there-but-for-the-grace-of-God notion that average families, through no fault of their own, are going bankrupt because of medical debt.

President Obama, in addressing a joint session of Congress in September, called on lawmakers to protect those “who live every day just one accident or illness away from bankruptcy.” He added: “These are not primarily people on welfare. These are middle-class Americans.”

The Senate majority leader, Harry Reid of Nevada, made a similar case on Saturday in a floor speech calling for passage of a measure to open debate on his chamber’s health care bill.

The legislation moving through Congress would attack the problem in numerous ways.

Bills in both houses would expand eligibility for Medicaid and provide health insurance subsidies for those making up to four times the federal poverty level. Insurers would be prohibited from denying coverage to those with pre-existing health conditions. Out-of-pocket medical costs would be capped annually.

How many personal bankruptcies might be avoided is unpredictable, as it is not clear how often medical debt plays a back-breaking role. There were 1.1 million personal bankruptcy filings in 2008, including 12,500 in Nashville, and more are expected this year.

Last summer, Harvard researchers published a headline-grabbing paper that concluded that illness or medical bills contributed to 62 percent of bankruptcies in 2007, up from about half in 2001. More than three-fourths of those with medical debt had health insurance.

But the researchers’ methodology has been criticized as defining medical bankruptcy too broadly and for the ideological leanings of its authors, some of whom are outspoken advocates for nationalized health care.

At the bankruptcy court in Nashville, lawyers provided a spectrum of estimates for the share of cases in Middle Tennessee where medical debt was decisive, from 15 percent to 50 percent. But many said they felt the number had been growing, and might be higher than was obvious because medical bills are often disguised as credit card debt.

“This has really become the insurance system for the country,” said Susan R. Limor, a bankruptcy trustee who calculated that 13 of the 48 Chapter 7 liquidation cases on her docket one recent afternoon included medical debts of more than $1,000.

Under Chapter 7, a debtor’s assets are liquidated and the proceeds are used to pay creditors; any remaining debts are discharged, and filers are left with a 10-year stain on their credit ratings.

“You can’t believe how many people discharge medical debts,” Ms. Limor said. “It’s a kind of trailing indicator of who’s suffering in this economy.”

Kyle D. Craddock, a bankruptcy lawyer here, said his medical cases were heartbreaking because the financial devastation was so rapid and ill-timed. “They’re sick, they’re bankrupt, and if they stay sick for too long, they end up losing their jobs as well,” he said.

That was the case for Ms. Phillips, 45, who said she was fired in October from her job in a shipping department because she had missed so much work while recuperating from her car accident and operations. Her firing came only 11 days after she filed for bankruptcy, listing about $7,000 in unpaid medical bills among her $187,000 in liabilities.

“The medical bills put me over the edge,” said Ms. Phillips, who lost her health insurance along with her job. “I had no money for food at this point. How was I going to do it?”

It was the same for the Mullinses, who have two children. They had a mortgage and owed money on credit cards and student loans. “But the medical problem is what took us down,” said Ms. Mullins, who is packing to move from the two-bedroom house they will soon surrender to Wells Fargo. “Everything was due, they wanted their money now, now, now, and it just became overwhelming.”

For some, like Nathan W. Hale, 34, who had an attack of pancreatitis two months after losing his job with a Nashville cable company, it is the absence of insurance that pulls them under. Others, like Robin P. Herron, 35, of Eagleville, Tenn., have insurance, but it is not enough. Her Blue Cross Blue Shield policy covered only 80 percent of the cost when her daughter needed surgery to remove a cyst from a fallopian tube, leaving her $6,000 in debt.

After cortisone injections failed to cure his gimpy knee, Mr. Covington, 31, had surgery because the pain was forcing him to miss days of work as an emergency medical technician. His recovery kept him off the job for five months.

Simultaneously, his wife, a 911 dispatcher, developed sciatica while pregnant and had to take months off on reduced disability pay. Their insurance policy, with an $850 monthly premium, has a $4,000 annual deductible per family.

As the bills rolled in, the Covingtons compounded their troubles by placing medical charges on credit cards, simply to make the collection agencies stop calling. They fell months behind on their mortgage, and by August had lost their house and both cars.

Mr. Covington, who has taken a second job, said he found it ironic that it had not been the recession that forced them into bankruptcy. “I tell my wife that we beat the economy,” he said, “but health care beat us.”

Copyright 2009 The New York TImes Company. All rights reserved.