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October 20, 2009
October 20, 2009
I know that the Committee is concerned about the financial hardships that many Americans experience due to health care costs, particularly bankruptcy. As you know, medical expenses are a major factor in nearly two-thirds of bankruptcy filings. People with poor or no health insurance coverage and a significant health problem are more likely to accrue considerable medical debt than people who have good coverage and good health - and thus are particularly vulnerable to bankruptcy. Yet when they reach bankruptcy court, the bankruptcy trustee has little ability and little incentive to address the underlying factors that have led to medical debt and medical bankruptcy, including insurance company denials and aggressive collection efforts by medical debt collectors. Medical debt is, of course, a symptom of larger problems in our health care system - and the solution to medical debt and medical bankruptcy is real health reform that results in affordable, reliable health coverage and affordable health care for all Americans.
The problem of unaffordability is most apparent for the nearly 47 million Americans who lack health insurance. Roughly two thirds of Americans without health insurance have incomes below 200 percent of the federal poverty level--or approximately $44,000 for a family of four. Most people without health insurance are workers or live in families with a worker, but do not have health coverage through an employer. With the annual average cost of employer-sponsored health insurance nearing $13,000 in 2008, health insurance is clearly unaffordable for families who must purchase it on their own.
Sadly, even people who actually have health insurance increasingly face problems paying for health care. A growing number of Americans with health insurance face affordability problems for health insurance and for health care. For example, a recent analysis by the Commonwealth Fund identified 25 million adults with health coverage as underinsured - that is, they had out-of-pocket medical spending that absorbed at least 10 percent of family income, or, for low-income adults (defined as 200 percent of the federal poverty level), at least 5 percent of family income; or if they faced deductibles of at least 5 percent of family income. This represents a 60 percent increase from the 15.6 million Americans who were underinsured in 2003.
Another study, which explored families' actual problems paying medical bills, found that one if five Americans reported problems paying medical bills in 2007. This work from the Center for Studying Health System Change indicates that even moderate levels of out-of-pocket spending relative to family income - that is, spending that is well below the 5 or 10-percent of family income considered to be underinsured by the studies just cited - created medical bill problems. For example, two-thirds of the individuals who reported trouble paying medical bills spent 5 percent or less of their family income on health care. As author Peter Cunningham noted, many families have little wiggle room within their family budgets for large or unexpected out-of-pocket health care expenses. And even a relatively low level of health care spending compared to family income can create financial stress for low-income families. (See chart below.)
People who are under-insured not only face the medical problems of inadequate treatment; they also face financial problems from the treatment they actually get. Of sicker underinsured adults, three-fifths reported having been contacted by a collections agency. In a 2007 survey, respondents reported making difficult choices between using up a lifetime of savings, running up credit card debt, skipping the purchase of other necessities, or adding a mortgage against their home in order to pay medical bills.
Home mortgage foreclosure, another personal financial catastrophe, is also related to health care expenses. Seven out of ten respondents in a recent survey of borrowers in foreclosure reported unmanageable medical bills as an underlying cause of their foreclosure, or had experienced other medical disruptions to their income, such as lost work due to illness or using home equity to pay medical bills.
Finally, medical bankruptcy represents the far extreme of the financial problems individuals without health insurance or with inadequate insurance can face. Hard-to-manage health care spending may not appear as easily-identifiable medical debt, but may instead be hidden in second mortgages, large credit card debt or unsecured loans. Many medical debtors turn to borrowing to cover accrued medical expenses in order to continue treatment - and continuing treatment may be their highest priority. For example, a recent debtor in eastern North Carolina incurred $30,000 in uncovered medical expenses for a child who needed cardiac surgery. He borrowed $30,000 to pay for that first surgery because a necessary second surgery was withheld until the first bill had been paid. With $30,000 in unreimbursed medical expenses from the second surgery, as well as loans to cover the initial surgery, the father was forced into bankruptcy.
In some cases, bankruptcy may be driven not by underinsurance but by bad insurance company practices. Unfortunately, bankruptcy trustees have little opportunity or incentive to look into unwarranted denial of claims or unwarranted rescission of coverage - even though these practices may push individuals with health coverage into bankruptcy. And those who suffer from a wrongful rescission or denial include not only the debtor, but also all the other creditors, whose debts are devalued by the bankruptcy filing.
Bankruptcy Reform and Medical Debt
One approach that would provide immediate relief to medical debtors would be to reform bankruptcy rules for individuals who are driven to bankruptcy by medical expenses or the secondary effects of medical expenses. Senator Whitehouse, for example, recently introduced the Medical Bankruptcy Fairness Act (S. 1624). This proposal would provide individuals with medically-related debts easier access to Chapter 7 to discharge their debts. It would also allow medical debtors to retain at least $250,000 in home value, and enable them to bypass burdensome and inappropriate credit counseling requirements. This approach would give medical debtors a less burdensome, less catastrophic bankruptcy option that recognizes the unique circumstances that have driven them to bankruptcy. 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.
Ending Medical Bankruptcy: Health Reform and Affordability
I am confident that Congress will conclude that the problems I have outlined in my testimony - families forced into bankruptcy, people with chronic conditions going without necessary care, low-income families experiencing the squeeze of unexpected medical bills - are merely a symptom of the larger problems in our health care system. Today we leave too many Americans without health insurance - and even more without adequate coverage. High deductibles and unrealistic copayment responsibilities leave people with chronic illness at perpetual risk of financial ruin. Health insurance companies are able to deny coverage to people with health problems, exclude pre-existing conditions from coverage when they offer it, and charge unmanageable premiums. They can even rescind coverage when their policyholders get sick, leaving people who had faithfully paid their premiums without the financial protection they thought they had paid for.
Congress can fix these problems. Health reforms that ensure that all Americans have health insurance coverage with adequate benefits and reasonable copayment responsibilities will provide real financial protection and real access to health care services. Health reforms that curb insurance companies' discriminatory practices will ensure that everyone can purchase and retain comprehensive coverage, including coverage for pre-existing conditions. And health reforms that require everyone to have coverage, while guaranteeing that individual and family premium contributions are affordable, will end the cost-shifting and uninsurance that are hallmarks of the current system.