The number of people filing bankruptcy due to medical bills has been rising every year. A recent study in the American Journal of Medicine shows that more than 62% of people filing for bankruptcy do so at least partly because of medical bills they can't pay. Many filers have insurance – often they've 'capped out' their insurance and the insurance company refuses to pay any more bills, leaving them tens or even hundreds of thousands of dollars in debt. In other cases, illness has forced people to lose or leave their jobs, meaning that not only do they have no money coming in to pay their bills, but their insurance coverage has often lapsed as well.
A bill recently introduced in Congress – by Carol Shea-Porter (D-NH) in the House and Sheldon Whitehouse (D-RI) in the Senate – hopes to make filing bankruptcy easier for people in this situation. People who owed either 10% of their income or $10,000, or who had been out of work for more than 4 weeks in the last year due to illness, would qualify as medical debtors. The bill would exempt these filers from the requirement to take credit counseling. More importantly, they would no longer be subject to the means test – all medical debtors would be allowed to file Chapter 7. And the homestead exemption – the amount of equity they could keep in their home after filing bankruptcy – would rise to $250,000 for medical debtors.
Will the Medical Fairness Act pass? It's hard to say. To some extent, the debate seems to be falling along the same lines as the general health care debate: democrats for, republicans against. At a recent hearing in the Senate, Whitehouse brought in a number of debtors to make the emotional point that they lost everything, including in many cases their homes, due to unavoidable medical bills. Kerry Burns told the tragic story of her son, who died at the age of 4 after a long struggle with cystic fibrosis. She and her husband both took leaves from their jobs. They cashed in their 401K accounts, spent every penny in their bank accounts and had insurance– and all that wasn't enough to pay their son's medical bills, which came to over five million dollars.
Republican opponents, particularly Sen. Jeff Sessions (R-AL), seemed unmoved. Sessions seemed more concerned with the plight of the credit card companies, who will likely lose money if more people file Chapter 7. Sessions worried that people would qualify as medical debtors when the 'real' reason for their bankruptcy was due to overspending on their credit cards. He called experts who claimed that the study was flawed and the real role of medical bills in bankruptcy is much smaller. Others rebutted both arguments, pointing out that the number of medical debtors may be greater than the study shows, as many people put medical bills on their credit cards.
The Democrats have the votes in both the House and the Senate to pass this bill. But the credit card companies and the medical industrial complex spend an enormous amount of money on lobbyists to protect their interests. The Medical Bankruptcy Fairness Act is a common sense relief for people who've incurred enormous bills simply due to their medical problems. Whether or not it passes says more about politics than policy.