As the debate over healthcare reform continues, one "particularly cruel" area impacting individuals is potentially overwhelming medical expenses that can lead to personal medical debt and bankruptcy, Sen. Sheldon Whitehouse (D-RI) said Tuesday at a Senate Judiciary Subcommittee on Administrative Oversight and the Courts.
Whitehouse, the chairman of the panel, cited one study out earlier this year from Harvard that said the number of medical bankruptcies was growing, with up to 60% of personal bankruptcy filings related to medical debt. Nearly, three-fourths of those individuals did have some type of medical coverage.
To "assist families struggling under the weight of medical debt," Whitehouse said he has introduced the Medical Bankruptcy Fairness Act of 2009 (S 1624). This bill proposes to make the bankruptcy process "quicker and less expensive" for filers with high medical debts and increases their chances of retaining their homes.
The bill also would allow the retention of at least $250,000 of home value through the bankruptcy process—helping families keep their homes. It would also remove credit counseling requirements that that all individuals entering into bankruptcy must take. The "cause of bankruptcy is not poor financial management but a medical crisis," Whitehouse said.
Added into the bill are provisions designed to waive the so called "means test"—making the filing process quicker and less costly. This provision would also help ensure that people have the ability to file to have their debts discharged in Chapter 7—a generally more efficient and simpler bankruptcy process.
Elizabeth Edwards, a senior fellow with the Center for American Progress Action Fund, said that hard to manage healthcare 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," she said.
However, when they reach bankruptcy court, "the bankruptcy trustee has little ability and little incentive to address any underlying factors that have led to medical debt and medical bankruptcy," she said. These include: insurance company denials and aggressive efforts by medical debt collectors.
Aparna Mathur, a research fellow and Jacobs Associate at the American Enterprise Institute, disagreed with the percentage of cases related to medical bankruptcy, saying it actually may be smaller. "While the intentions are laudable, there is little to support such an intervention based purely on the incidence of medical debts in bankruptcy filings," she said.