How to avoid the pitfalls of excessive medical debt.

All it took was one misstep. Jeffrey Grunendike was loading packages onto the truck he drove for a regional delivery service one morning when he stepped off the bumper and felt a sharp pain shoot through his left foot and up into his knee. Eventually diagnosed with a hematoma in his heel and tears in the connective tissue of his foot and Achilles tendon, Grunendike, 50, spent a year with both feet in casts (the right foot had flared up from the added strain). But his foot didn’t heal properly and his doctors eventually told him they couldn’t do anything more. Meanwhile, the pain continues to be excruciating. Grunendike takes seven pain drugs, including oxycodone and hydrocodone. The medications take the edge off, but I never have a day that’s pain free, he says.

The financial fallout has been devastating. Unable to stay at his old job, Grunendike says potential employers are wary of hiring him because he’s taking narcotics painkillers. Without his $40,000 salary, he and his wife, Cristi, have scraped by, relying on her $34,000 job at a doctor’s office near their home in Aberdeen, South Dakota. They’ve returned their leased boat and truck, sold his coin collection and guns, remortgaged their house, borrowed from friends and taken out loans to cover living expenses and out-of-pocket medical costs, including $400 a month in copayments for drugs. With close to $100,000 in outstanding debt, the Grunendikes finally declared bankruptcy in September 2009. It got so overwhelming, and there was just no way to pay the bills, he says.

A DISTURBING TREND
Filing for bankruptcy because of medical debt used to be about as rare as surviving cancer. These days, though, rising healthcare costs and skimpier employer coverage mean that for more people, bankruptcy may seem like the only way out from under the mountain of debt that can accumulate following a serious illness or accident. In fact, nearly two-thirds of all bankruptcies filed in the United States in 2007 were related to medical debt, according to a report by researchers at Harvard Medical School, Harvard Law School and Ohio University. That’s 50 percent jump since a similar study done in 2001.

Perhaps even more disturbing, most filers didn’t fit the stereotype of someone in financial trouble. They were a lot like the Grunendikes, middle-class homeowners with health insurance (over three-quarters of those who filed for medical bankruptcy in the 2007 study had health coverage). But as deductibles, coinsurance, out-of-network provider visits and other out-of-pocket costs related to their illness mount, many eventually fall behind on their bills. They take out loans or put medical expenses on credit cards. If they can no longer work because of their condition or injury, they may lose their employer coverage. Slowly, they start to go under. People usually struggle with financial difficulties for at least two years before they file for bankruptcy, says Steffie Woolhandler, M.D., M.P.H>, a professor of medicine at Harvard Medical School and one of the co-authors of the 2007 study.

Out-of-pocket medical costs for medically bankrupt families, couples or individuals averaged $17,943, according to the study. But that figure doesn’t tell the whole story that’s just their medical debt. A filer’s total debt is usually much higher because they have had to quit their job or remortgage their home to cover living expenses and medical bills. The 2007 study found that filers total debt was in fact $44,622, on average, versus $37,650 for those who filed for nonmedical reasons. People with neurologic illnesses like multiple sclerosis, followed by diabetes, injuries, stroke, mental illness and heart disease were the hardest hit. Overall, hospital bills made up the biggest share of out-of-pocket expenses.

Unfortunately, health-related debt doesn’t get special treatment in bankruptcy court, says Marc S. Stern, chair of the American Bar Association’s General Practice, Solo and Small Firm Division Bankruptcy Committee. Someone with multiple sclerosis who has racked up thousands in bills or pain management and specialist visits won’t receive any more lenient treatment than someone who charged up their credit cards renovating the kitchen.

HOW MEDICAL BANKRUPTCY WORKS
If you have medical debt you can’t overcome, you can consider filing one of two types of bankruptcy, Chapter 7 or Chapter 13. Most people file Chapter 7, or liquidation, in which a court-appointed trustee sells any of your nonexempt assets to pay off your creditors. You are allowed to keep some assets considered necessities, such as a car, a portion of the equity in your home, furnishings, clothing and a pension. Following a Chapter 7 liquidation, you’ll be off the hook for any outstanding medical debt.

It’s gotten harder to file for Chapter 7 bankruptcy, however, since Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This law instituted a means test to prevent higher-income people from filing under this section of the bankruptcy law and increased the filing fees. Bankruptcy lawyer David B. Ebert, president of Ebert Law Offices, in Hurst, Texas, says many believe that the new law created safeguards where none were needed, at the same time making the process more cumbersome and expensive for those who must file.

Those who don’t meet the means test or who have assets they want to protect can consider Chapter 13 bankruptcy. Under this option, you agree to repay some or all of your debts over a three- to five-year period. After that time, any remaining debt is erased. Filing for either kind of medical bankruptcy will get creditors off your back and erase your medical debts, or in the case of Chapter 13, create a payment plan that will allow you to put them behind you. But, although you can start over, you won’t have a clean credit record for a while. It’s not usually hard to get a credit card after you file for bankruptcy, but it can be difficult to get any other kind of credit, explains Jennifer Jaff, an attorney and executive director of Advocacy for Patients with Chronic Illness, in Farmington, Connecticut. You can begin rebuilding your rating by meeting your ongoing financial obligations during the years after filing. After 10 years, a Chapter 7 bankruptcy will be erased from your record. If you filed Chapter 13, it’ll be gone in seven years.

Deciding what type of bankruptcy to file doesn’t mean the process is always straightforward, though. Some healthcare providers may stop seeing you after you declare bankruptcy, particularly if their debts were among those that didn’t get paid. Tammy Witt, 42, of Somerville, Ohio, declared medical bankruptcy in June 2009 when she realized she would never be able to pay the nearly $60,000 in medical bills she incurred to treat her breast cancer and for breast reconstruction. The health system overseeing the hospital where Witt had her surgery sent her a letter informing her she’d have to find a new doctor. When Witt called the oncologist herself, her doctor told her not to worry. You just keep coming here, she told Witt. But all providers may not be as understanding. Thankfully, even if your doctor decides to take a hike, filing shouldn’t have an effect on your ability to get or keep health insurance assuming you keep up your premiums because most insurers don’t do financial background checks.

PROTECTING YOURSELF
Most people, of course, would rather avoid filing for bankruptcy in the first place. But the hard truth is that for most it’s hard to defend against medical bankruptcy. After all, who sees a catastrophic illness or injury coming? Most important, experts say, is staying on top of your bills, medical and otherwise, as they come in. When a claim is filed with your insurer, you should receive a response that includes your plans explanation of benefits. This document details what the insurance company will pay for that specific claim and what the patient responsibility portion is what you will need to pay. Jaff cautions against putting medical costs on a credit card, and if you do need to use one, she says, keep a close eye on what you owe. Depending on your medical and financial circumstances, you may be able to take steps to reduce your bills or negotiate what you already owe. Talk to the billing office at your doctors offices or at the hospital about what you owe before you fall behind on payments, or as soon as you know you likely won’t be able to pay in full. Some may offer a discount for paying in cash and many are willing to work out a payment plan and could drop 30 percent or more off the total, Jaff says. Don’t wait until your bill goes to a collection agency. Providers can settle for a lot less than a collection agency will. Remember: Staying on top of the situation, even if it means filing for bankruptcy as a last resort, is the surest way to manage the financial fallout of a serious illness or injury. It’s really all about staying in control financial, stresses Jaff. And if you can’t control it, that’s when you need to talk to a bankruptcy attorney.

Written by: Michelle Andrews, New York City based health writer
Originally published in Pain Solutions Magazine, Spring 2010

Photo Credit: by Lastdays1, courtesty of Stock Free Images

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