Your Money or Your Life

Five long years ago, Rose Shaffer's life seemed sweet. A nurse since the early 1970s, Shaffer had spent most of her 60 years working at various Chicago hospitals, rising through the caregiver ranks and raising three kids. Now in the twilight of her career, she'd been hired as director of nursing at a home health agency in the suburb of Lombard. The position made Shaffer proud – she knew her salary could pay off the mortgage on her house a little sooner. At the time, her cousin Barack Obama was fast becoming a rising star in the Illinois State Senate.

Seven months into her new job, Shaffer suffered a heart attack, and an ambulance rushed her to Advocate South Suburban Hospital. Shaffer assumed she was automatically covered – health insurance was a given at her previous nursing jobs. She thought she'd filled out the proper forms. But she hadn't.

A week later, Shaffer received a bill from Advocate for the three days she'd been hospitalized. It was for $18,000. Shortly thereafter, Advocate began sending letters to Shaffer demanding payment. Then, a summons to appear in court was tossed on her porch. Advocate was suing her.

Shaffer was terrified and didn't show at her court date. She says she even received a letter from the Cook County Sheriff's Department, threatening arrest unless she appeared. Under pressure from Advocate and now behind on her mortgage payments, Shaffer filed for Chapter 13 bankruptcy in December 2002, which meant her debtors would garner a reduced portion of the money she owed.

"The hospital saved my life, but now they were trying to kill me," Shaffer says.

Rose Shaffer's experience has become disquietingly common. Since 2000, Harvard associate medical professors Steffie Woolhandler and David Himmelstein, along with Harvard law professor Elizabeth Warren and Ohio University sociology and anthropology professor Deborah Thorne, have been compiling data on bankruptcies in the United States. Their study, published on Feb. 2 by the medical policy journal Health Affairs, found that between 1981 and 2001, medical-related bankruptcies increased by 2,200 percent, an astonishing explosion in a relatively short period of time. This spike far outpaced the 360 percent growth in all personal bankruptcies during roughly the same period.

In addition, the study uncovered surprising information about the affected population. While poor, uninsured Americans have long been the most obvious victims of a defective healthcare system, it's the middle class that suffers most in this case, accounting for about 90 percent of all medical bankruptcies, says Warren.

"The people we found to be profoundly affected are not some distant underclass. They're the very heart of the middle class," Warren says. "These are educated Americans with decent jobs, homes and families. But one stumble, and they end up in complete financial collapse, wiped out by medical bills."

With so many middle-class American households potentially vulnerable, you might think politicians would seek a solution sensitive to their interests. Yet the momentum in Washington is in the opposite direction – toward bankruptcy "reform" that would make things worse for people who have been financially ruined by illness.

Until 25 years ago, filing for bankruptcy because of debts from a medical problem was virtually unheard of. In 1981, University of Texas law professors conducting bankruptcy research noticed that a handful of the debtors they were studying could never quite pay off their medical bills, but while these bills certainly didn't help, they weren't forcing people into bankruptcy.

Today, by contrast, medical-related debt is the second leading cause of personal bankruptcies, topped only by job loss. Edward Janger, a professor at Brooklyn Law School, gives two reasons for the change: First, there's been a dramatic rise in healthcare costs. In 2002 Americans paid an average of $5,440 in medical expenditures, up $419 from the previous year. A September 2004 study by Families USA found that 14.3 million Americans now hemorrhage more than a quarter of their earnings into healthcare costs.