Michael Kay May 3rd 2010

Dr. Cynthia Bowling

Medical Bankruptcy
POLY 7360

A study of medical bankruptcy was published in February of 2005. The Harvard

study was a product of Dr. Himmelstein, Elizabeth Warren, Deborah Thorne and Steffie

Woolhander. It was a collaboration between the Harvard Medical and Law schools. The

attempt was made to determine illness and injury as a contributor to bankruptcy. They

addressed the following questions: (1) Who files for bankruptcy? (2) How frequently do

illness and medical bills contribute to bankruptcy? (3) When medical bills contribute,

how large are they and for what services? (4) Does inadequate health insurance play a

role in bankruptcy? (5) Does bankruptcy compromise access to care? (Himmelstein 2005)

46% of respondents to Himmelsteinss study, 1,771 in all, listed major medical

cause as a reason for their bankruptcy filing. (Himmelstein 2005) The study defines

major medical cause as illness or injury listed as the specific reason, or uncovered

medical bills exceeding $1,000, or lost of at least 2 weeks of work related income

because of illness/injury, or mortgaged home to pay medical bills. (Himmelstein 2005)

 THE PROBLEM

NO INSURANCE/ PRE EXISTING CONDITIONS

There are several reasons why bankruptcy is the only option left for those

struggling with illness. The first being that millions of Americans simply dont have any

coverage: either because they cant afford it, or are unable to get it. Over 50 million

Americans cant afford coverage. 56% of medical bankruptcy filers said that premiums

were unaffordable and 7% had pre existing conditions. The rest of the respondents in the

Himmelstein study reported job loss or ineligibility as the reason for not having

insurance. (Himmelstein 2005)

LIMITS TO INSURANCE POLICIES

Insurance is not prevention of financial loss it just post pones the inevitable. In

the case of many families an illusion of safety exists because they have insurance, but it

will only cover treatment up to a certain amount. Unfortunately, the limits to policies are

reached at the worst possible moment in the treatment of a loved one.

In the case of Kelly and Tom Treinen, their son, Michael, was only able to receive

up to one million dollars in coverage when he was diagnosed with cancer. The

chemotherapy drug he was taking cost 10,000 dollars a dose and a 56 day stay in the

intensive care unit cost up to 400,000. Their policy reached its cap at the same time the

doctors had decided to go ahead with a costly bone marrow transplant. The hospital
required and additional $600,000 to continue preparing for the procedure. Michael passed

before he could receive the transplant (Associated Press 2008)

The lifetime cap on the Treinens family policy, which was provided for by

Kellys job as a school principle, was reached in less than a year. In cases like these,

families liquidate their life savings, sell their home and sometimes quit their jobs to take

care of a loved one. Even after bankruptcy, they are continually coping with the burden

of caring for the sick. This burden often leads down a path of financial ruin.

GAPS IN COVERAGE

In many cases the medical bills may not have been the primary reason, but were at

least a contributing factor. Many of these bankruptcies occurred in homes where

insurance existed, but was unable, or unwilling, to cover costs that were not a part of the

plan. It is nave to assume that anyone is able to predict the medical conditions that

will plague them throughout life and to be able to guess as to what one should purchase is

inconceivable.

In many of these plans customers are only able to purchase the minimum

amount of coverage, thus leading them into a false sense of security that they have

provision in the event of an illness.

An individual I know personally had purchased a simple plan that was all he

could afford, only to find out that when his wife was in labor that anesthesiology in the

form of an epidural was not covered because it was not considered medically necessary
by the insurer.

This is a lack of coverage issue that, once again, stems from cost. Insurers are

unwilling to pay for procedures that they deem to be unnecessary. As long as the insurers

are in the position to determine a course of treatment they are going to choose that which

is most financially beneficial to them. The free market ideals that have made this country

great are the same ideals that are eroding our healthcare system. Insurance companies

primary incentive is to control profit by denying treatment. As long as these two are

linked there will be a continued lack of coverage for the patient, who is in the worst

possible position to negotiate.

This problem creates a system of cost escalation. As the insurer denies coverage,

and the hospital continues treatment, the burden falls on the patient. When the patient is

unable to pay, or more likely, files bankruptcy, then the cost is absorbed as bad debt that

the hospital must fund. This causes an increase in charges for procedures. As the

procedures become more and more costly, self-pay patients are unable to compensate the

hospital. These patients are added to the total number of patients rehabilitating on the

hospitals dime.

These individuals are not ones who just can not keep up with payment. They are

willing to mortgage the home to pay the bills. This also includes individuals who have

health insurance, but not enough to cover the expenses of their treatment. In Dr.

Himmelsteins study 75% had insurance at the onset of illness. (Himmelstein 2005) This
is not an issue of personal responsibility or lack of employment. Medical Bankruptcy is

completely indiscriminate. Those with jobs and health insurance may be able to

financially survive longer; however, it depends on the illness. The problems that derive

from medical bankruptcy stem from the enormous cost of coverage. Even when coverage

is attained, it is often incomplete and inadequate to deal with the vast array of medical

expenses that one is assured to experience in a normal life span.

INSURANCE TIED TO EMPLOYMENT

A strong predictor in medical bankruptcy is a lapse in health insurance coverage

during the two years before filing. (Himmelstein 2005) This loss of coverage, which is a

symptom of employment problems, leads to a vicious cycle of ballooning debt. A person

gets sick, unable to work, and loses what little health benefits they may have which leads

leading to being unable to pay bills.

It is easy to look at employers as being part of the problem, but we need to examine

their health care costs. Can we draw any conclusions about how much a company spends

in health care per year per its employees? The agency for healthcare research and quality

has an excellent tool for determining this cost. If we look at the average total family

premium (in dollars) per enrolled employee at private-sector establishments that

offer health insurance we see the average total expenditure as $12,298 per employee.

As an employee of Auburn University I spent close to $4,000 for my family plan and the

University spent close to $8,000, therefore, I believe these numbers to be fairly accurate.
 Average total family premium (in dollars) per enrolled employee at private-sector
establishments that offer health insurance

How many companies can afford to spend $12,000 per year per employee? This

rate most likely changes based on coverage and size of the company. For example, a

large corporation such as Coca Cola is in a much better position to negotiate fair cost for

its plans due to the volume of policies that they purchase. I believe this large purchasing

power is part of the solution; however, I will address this later in this paper.

In 1996 the average premium companies were paid was closer to $5,000

altogether. In order for companies and employees to keep up with the rise in health care

premiums they would have to more than double salaries and profits in order to pay for the

increase. The growth is even more daunting considering the economic downturn, which

in effect amounts to a more severe increase in cost due to the fact that the purchasing
power of the dollar has decreased.

When only but a few large corporations and the government are able to handle the

cost of insurance then I believe the problem to be a function of out of control healthcare

costs. Whether the problem is a function of improper regulation, greed, or

misappropriation of funds the bankruptcy law is actually becoming medical debt law.

COST

The increased cost of healthcare in this country stems from several different

issues; however, as indicated above it encompasses almost everyone involved in the

healthcare process. If we could justifiably say that we have the best health care in the

world then we could accept the reality that we pay for that superb healthcare. America

falls behind, depending on how you measure good healthcare. Our life expectancy is

shorter than that of Canada, Japan and most western European countries. We rank 43rd in

the world in infant mortality rates. Yet, the Congressional Budget Office has noted that

health care spending in the last thirty years, has risen 2% faster than the rest of the

economy. (Brownlee 2008)

Rationed care is one reason for high cost, which is frequently used by

conservatives. Basically, the premise here is that as Americans we do not suffer from

having to wait for procedures and therefore end up paying more for the service of

immediate care when receiving tests and treatments. These arguments lack objective

data. In the United States there is a 25% greater chance of dying if you lack private health
insurance. In this case, care is rationed, as long as you have money. (Institute of Medicine

2002)

Paul Krugman of the New York Times sees our system as paying for the means

instead of paying for the results. Cost is the byproduct of a free market system and a

business has to pay for its costs or it will go out of business. Health insurance companies

are obligated to look at their bottom line because their share holders demand it. Health

Insurance Companies are not in the business of your healthpaying for your healthcare

is a loss from an insurers point of view. (Krugman 2009) Insurance Companies are not

inherently evil; they are just following the principles of the free market.
 THE CAUSES
MALPRACTICE

Conservatives have been quick to cite medical malpractice lawsuits as the culprit.

Without tort reform, they theorize, costs will never be controlled because doctors must

spend; and spend more to protect themselves. This also leads to doctors practicing

defensive medicine. If malpractice is judged inaccurately, or is not clearly defined,

doctors may carry out excessive tests or procedures to be able to cite as evidence that

they were not negligent. (CBO 2004) Between the years of 2000 and 2002 premiums on

malpractice insurance rose some 15%. Some specialties have shown an increase as much

as 30%. (CBO 2004) Understandably, doctors pass this expense on to the consumer,

insurance, and government. If all physicians have the same cost factored into their

practice then patients would not see any difference, from a price standpoint, when

treating from one to the next.

While the amount, in premiums, that doctors pay for malpractice insurance is

high, it cannot be blamed for the enormous cost difference between this nation and other

countries. If malpractice law was non existent in other countries, understandably the

insurance would be an enormous cost multiplier; however, other nations, like Japan, also

have strong malpractice laws.

ADMINISTRATIVE COSTS

Wasteful Spending is being defined as costs that could have been avoided without
a negative impact on quality. The administrative costs associated with insurance

companies managing plans are another factor in rising costs. Price Waterhouse Coopers

identified 1.2 trillion of the 2.2 trillion in healthcare spent annually to be wasteful

spending. They found several key locations of waste: 210 billion stemming from

inefficient claims processing and defensive medicine and 14 billion was attributed to

unnecessary ER visits. In their survey they found that two-thirds of consumers surveyed

stated that they had personally received excessive medical testing. (Price Waterhouse

Coopers 2010)

The geography of healthcare is considered a factor and should be grouped with

administrative costs. Los Angeles has a higher cost of living than North Dakota. Services

located in these areas reveal cost being greater as doctors, nurses and hospitals have to

pay for working in a more expensive environment. A Medicare patient, receiving

treatment for a heart attack in Salt Lake City receives care totaling $23,500 while the

same patient in Los Angeles would spend $30,000. (Brownlee, 2008) Some of this cost is

due to higher standard of living but it does not account for the entire $6,500. The Los

Angeles patient sees a more aggressive level of care and as a result has more tests and

procedures performed than the one in Salt Lake City. This is the result of a lack of

standard procedure for certain conditions. The irony is that the heart attack patients in

Los Angeles die at slightly higher rates than patients in Salt Lake City, even though they

are receiving the more expensive care.

 RISING COSTS IN MEDICAL TECHNOLOGY/PRESCRIPTIONS

Medical technology and prescription drugs are profitable businesses in the US.

Just like the insurance, and every other sector of medicine, technology and

pharmaceuticals have not been immune to the escalating cost of treatment in the United

States. Why do drugs, like everything else, cost so much more in the United States? (1)

Increased utilization and demand for prescription drugs - From 1997 to 2007, the number

of prescriptions purchased in the United States increased 72%, while the population only

grew 11%. (2) Price increases - Retail prescription prices have increased on average 6.9%

annually between 1997 and 2007, much faster than the average inflation rate of 2.6%.

(3)Advertising and Marketing - Pharmaceutical manufacturers make substantial

investments on marketing to consumers and physicians, which may influence consumer

demand and physician prescribing practices. (Kaiser 2010)

Medical technology in the form of MRI machines, CT scanners and other

diagnostic equipment are becoming more expensive for hospitals and doctors to purchase.

The advances in the capability of these machines increase their value. I view this cost

increase as being comparable to buying a new car or computer. Over the last several

decades technology has been increasing at such a rapid rate that the latest and newest

thing has become progressively expensive. I may purchase a new computer today for

$2,000, but in two years it would be hard to justify selling it for $200.

Medical tech and pharmaceutical companies are constantly marketing their

hardware and software to doctors. The doctors buy these new machines and drugs while

patients are capturing the cost. Other nations, who have fixed prices, or limited

purchasing power, operate well with a two year old MRI; therefore, the value of the

depreciation is returned to the consumer. The only reason why this is a cost multiplier is

simply because it is allowed within our system. There is no cost filter in the US, therefore

when a new drug, that is twice as expensive arrives in the market, the system

accommodates the cost because of the mentality that newer is better.

In Japan it is relatively easy and cheap to get an MRI done and as a result they

have become rather popular. They simply dont allow costs to run amok in this area of

medicine. Profits suffer, but overall effect appears positive. In a 2009 interview with

National Public Radio, Professor Yekagami of the University of Tokyo stated that the

cost of an MRI is $160. (Yekagami 2009) In the same interview, NPRs planet money

team researched MRIs in Pensacola, Florida and found a wide range of values.

The MRI manufactures have to sell the same machines in Japan, but because they

are prevented from charging anything more than what the government will allow, they

are forced to accept the drastically low price that Japan pays. While it is accepted that

MRIs in the United States are expensive, it is difficult to determine why. NPR's Chana

Joffe-Walt called several hospitals and clinics to find out where the cost comes from and

received ambivalent responses such as We could never get those prices, to that is just

how it is, (Yekagami 2009) The price of the MRI is even a mystery to the professionals
buying the machines and offering the procedures.

CARE FOR UNINSURED/LAST MINUTE CARE

While each of the reasons listed above do not account entirely for the high cost of

care, taken together they give us a fairly accurate picture of the reasons why we pay so

much more for our healthcare. Though detractors of changing healthcare frequently cite

the quality of care, they rarely focus on what we are actually purchasing. America has

great care, but why have we been unable to provide it at an affordable rate?

According to the US department of Health and Human Services the Emergency

Medical Treatment & Labor Act (EMTALA) of 1986 requires participating hospitals to

treat patients who come to the emergency room for treatment regardless of their ability to

pay. The extraordinary cost associated with this treatment places an enormous financial

burden on the government (taxpayers) and the hospitals that treat these patients.

It was estimated in 1993 that 5 to 7 billion dollars in excess charges were spent as

a result of emergency room care. In the same study, completed by a professor at the

Stanford University School of Medicine, it was found that the average first visit charge

was close to 4 times higher if patients were treated in the emergency room vs. a non

emergency visit. (Baker 1993)

Charges are higher when seeking initial treatment in the emergency room because

those who are treated are mostly seeking treatment for conditions that would normally be

managed with simple preventative care. A patient with diabetes will find it hard to get
health insurance, and continued treatment will be costly with out-of-pocket expenses.

Since EMTALA provides for treatment only in the emergency room then that is where

patients without any coverage go for care.

Emergency care for a broken bone or cut may only take a day or more. In the case

of someone with a chronic illness their stay may be weeks. This cost is rolled into the

hospitals bad debt and is either passed on to the taxpayer through taxes that go to

Medicaid or to the patients who have insurance. The result is the same: a real increase in

cost that could be saved through simple preventative care.

 EFFECTS
THE SICK & FAMILIES OF THE SICK

Himmelstein noted that following their bankruptcy filings, about one third of

debtors continued to have problems paying the bills. Medical debtors reported particular

problems making mortgage/rent payments and paying for utilities. (Himmelstein 2005)

The medical bills exist as a byproduct of no income. When there is no money; the first

payments are typically going to be for food and shelter. These are not people who have

elected to go without coverage, but people who can simply not afford to purchase care in

any form.

Until the Himmelstein study, the idea that medical bills were the root cause of

many bankruptcies was not fully understood. This is because medical debt can be masked

by mortgage payments and credit card bills. What appears to be irresponsible

discretionary spending on paper is in reality the most necessary spending imaginable: the

spending to keep you or your loved one alive.

The group that suffers the most is the sick. Not only are they in a position with no

leverage, but they are also tasked with the extra burden of being out of work. In the case

of a bread winner the cost is devastating. An illness has the immediate effect of

creating the potential to lose everything. Marriages, homes, and children are all sacrificed

in order to hopefully restore the injured party to some measure of functionality. If the

illness is terminal the family could be stuck with the leftover debt that the injured party
was unable to pay. Lack of coverage affects families for two or three generations

removed from the injured party.

The burden of the cost will always eventually fall on the patient. While cost

is distributed, in some, part, to the employers, the vast majority of health care cost

becomes the responsibility of the injured party. This is why it is necessary to sign an

affidavit accepting responsibility of cost in the event of insurers failing to cover some

procedure or exam.

The majority of Americans do not live with a savings account large enough to

handle the expenses of any prolonged medical care. Few Americans are even in a

position to handle even small charges associated with routine procedures. This truth

inevitably leads to the loss of not only life, but quality of life. As the cost of healthcare

continues to rise the unfortunate truth is that there will only be a continual rise in

bankruptcy for medical reasons.

DOCTORS & HOSPITALS

According to a study done by Johns Hopkins Bloomberg Schools Department of

International Health, the state of Maryland spent $1.47 billion in 2002 on caring for the

uninsured. This number includes the sum of costs that public and private healthcare

payers, philanthropy and physicians spent on those who could not pay for the services

they required. Uncompensated hospital care accounted for $227 million, and the state

government spent $334 million. (Waters 2007)

 These numbers tell an important truth behind the cost of healthcare: When

patients cant pay, someone else will. Depending on the location and availability of

public services, the cost will fall on the hospital, doctors or the local/state government.

INSURERS

One group that benefits the most under the current system is the insurance

companies that provide health coverage. They are in the best position to absorb cost

because they can pass off the risk in the easiest manner. As costs rise, they can shed

benefits or raise premiums.

They are not immune to the high cost of medical care in the United States. Many

hold the insurance companies responsible for the problem, but they are only passing on

the problem. Making a profit under this system invites criticism. A compensation

package for CEOs routinely total in the millions. This compensation at the expense of

the sick and poor creates the uproar.

The McCarran-Ferguson Act of 1945 has been discussed recently, since insurers

somehow continue to be profitable despite rise in costs. The act allows insurers to be

regulated by the state without federal involvement. The consequence has basically been

state sponsored monopolies. It is easy for insurers to absorb costs because they simply

have few competitors. Therefore, they can do whatever is necessary to relive expenses

without the risk of losing customers.

 OVERALL ECONOMY/ TAXPAYERS

Some of this problem stems from a lack of regulation in this one area of our

economy. Even some of the regulation that we have has had undesirable consequences.

For instance, when President Johnson made a minor concession to the AMA in 1965 by

allowing usual and customary charges to become the basis of Medicare payments, he

essentially permitted doctors to set their own fees simply by adding a charge on top of the

costs they incurred. (Butler 674)

The inability of legislators to define what is usual and customary has led to

inflation in cost. The government may be able to handle usual and customary charges,

but the individual citizen is not in a financial position to do so. Because cost has

continued to rise without definition of reasonable or regulation to the effect, we are

now reaching the point where corporations are unable to handle charges.

The lack of intelligent cost control leads the taxpayers and the economy down a

slippery slope. We control the cost of many goods and services in our economy. Farmers

have dealt with these regulations for years. Healthcare is the most important service

received and therefore should require the greatest attention in consumer protection.
 SOLUTION

BANKRUPTCY PROTECTION FOR ILLNESS

On August 6th of 2009, Mr. Sheldon Whitehouse introduced legislation to provide

protection for medical debt homeowners. It is intended to restore bankruptcy protections

for individuals experiencing economic distress as caregivers to ill, injured, or disabled

family members, and to exempt from means testing debtors whose financial problems

were caused by serious medical problems. (Whitehouse 2009) This legislation was

presented as a new debt protection for those enduring illness and struggling to pay bills.

To define medical debt we need only to look to the same bill. The term medical

debt means any debt incurred directly or indirectly as a result of the diagnosis, cure,

mitigation, treatment, or prevention of injury, deformity, or disease or for the purpose of

affecting any structure or function of the body. (Whitehouse 2009) It is not necessary for

the largest bill discharged in a bankruptcy to be a medical debt for us to consider that

bankruptcy is a function of illness.

As of today, the bill is still in committee. The great benefit of the bill is to provide

much needed protection in the event of financial ruin. The exemption from means

testing will allow asset protection in the case of illness induced financial instability. This

protection will only control the effects of the problem and does little to control the causes

of these bankruptcies. Controlling the problem must occur at the root.

 COST CONTROLS/PRICE FIXING

One solution proposed in the current reform legislation involves the use of the

Office of Personnel Management (OPM). The OPM manages several nationwide health

plans that are available to federal employees and their dependents. Whereas the culture at

the Centers for Medicare and Medicaid Services (CMS) might best be described as

adversarial, with a strong focus on rule making and setting, the attitude at the OPM is

more similar to that of a large private employer that negotiates benefits with private

insurers. (Butler 674)

An office that negotiates better benefits for employees is advantageous due to the

fact that their purchasing power allows them to control price. The OPM has the ability to

demand certain prices and benefits, and this insures coverage on a much grander scale.

The CMS does not act in this role, but instead just functions to reimburse for

procedures that have already taken place. When the CMS reimburses they choose to pay

what they choose and for this reason the quality of care is affected because doctors,

clinics and hospitals do not receive the compensation they feel is appropriate.

This would not fix the administrative burden our systems suffer, but would quell

the high cost of quality care and reduce the market impact in expensive medical

technology and prescription drugs. Some argue that this solution will destroy the free

market and make research and development impossible. Japan begs to differ.

In an interview with Dr. Ikegami, One of Japans top health economists, the
question of the low cost of an MRI in Japan was addressed. As a result of the government

price fixing such tests, the cost of the machines has dropped. In Japan an MRI can be

obtained for close to $130. A similar MRI in the United States ranges in the thousands of

dollars. The result is the creation of an export market for Japanese MRI machines.

(Ikegami 2007) This is one case where market forces seem to work in the health care

industry.

Without price fixing by the government there is simply little incentive to control

cost. While choosing to buy a cheaper car makes financial sense when one is trying to

save money, the same motivation does not exist in the health industry. Patients simply

want to stay alive, so there is little incentive to not spend the money, mortgage the house,

or empty the bank accounts in the fight for survival.

SINGLE PAYMENT SYSTEM

Japan has one of the best healthcare systems in the world and their model for

controlling cost is one worth examining. Two indices used to determine quality of care

are infant mortality and life expectancy: areas in which Japan routinely excels. Japan is

able to do this while ranking 14th in per capita spending according to the Organization for

Economic Cooperation and Development, an international organization that keeps data

on health care for industrialized nations. According to the OECD, the United States ranks

number one with $4,631 per capita. Japan spends $2,011 per capita.

Japan, however, does not have a single payer system which is often cited as the
only real method of controlling cost. The single payer system is often criticized as maybe

being able to control cost, but at the expense of quality of care. Critics of single payer

also claim that the bureaucracy of single payer creates unnecessary wait times and a lack

of critical care as a result of inefficiency. We dont see those issues in the Japanese

system. The Japanese go to the doctor three times as much as Americans do and in 2006

health expenditures only increased by 0.1 percent. (Ikegami 2007) Japan has a different

economic dynamic at the core of their system.

In Japan there is a single payment system, not a single payer system. All payers

must use the system and all providers must use that system for reimbursement of medical

services. Who are the payers? The corporations and the government both pay in Japan.

The corporations have health insurance plans for their employees, but since the

government sets the cost of treatment, and prevents health insurance companies from

making a profit, all the money goes into increasing the quality of care. If a citizen is not

employed they pay a tax that goes into the government sponsored health fund. As a

result, all citizens are covered in Japan.

If there is a downside to the system it is that doctors can not negotiate for more

money because the prices are fixed. In Japan, a family practitioner can make as much as a

cardiologist; therefore, there are fewer incentives to become specialized. The real reward

is in seeing more patients. The more patients you see, the more you are paid. With so

much government control it would seem like being a doctor would not be a sought after
career in Japan, but this is not the case. Ikegami was asked if lower wages in Japan were

driving down the number of doctors. He stated, Well, as far as the competition to get

into medical school, it has gone up (Ikegami 2007)

This does not mean that private practices do not exist, but you must be able to get

private pay patients. If the practice is not able to secure private pay patients they go out of

business. The idea of the rich doctor in Japan does exist, but just not on the same scale as

the United States. Strangely, this phenomenon causes a draw to occur at rural hospitals.

The doctor at an urban hospital makes less, in general, than a doctor at a rural hospital.

The reason for this is because nurses and administrative staff at rural hospitals do not

demand higher wages, as a result of a lower cost of living. The rural hospitals are able to

pay the doctors more than their urban counterparts. They see fewer patients and make

higher wages.

Higher co-payments in Japan are another reason for the lower cost of the

healthcare. It is the way that Japan deals with the inability to pay that is worthy of

inspection. Co payments in the United States vary widely depending on the clinic, and

the type of health insurance plan. We pay for being sick. The sicker we are, the more

financially strapped we become. In 2003, in Japan, the copayments went up to 30%, but

remember the total cost is much lower due to the fixed cost of the government. When

asked how it could be that high with no medical bankruptcies Dr. Ikegami responded,

For outpatient, it may seem pretty significant, but once it goes over a certain
catastrophic amount, then the co-payments go down to 1%. The amount depends on the

income. If you have low income, the cutoff may be about $300, and if you are high

income, it would be about $1,200. (Ikegami 2007) If the ability to pay disappears

completely as a result of treatment or job loss then the ill fall into the social net and the

government picks up the bill.

Enormous savings come from the administrative burden being non existent in

Japan. With one system, many payers, there is not a multitude of procedures, tests, or

records that come from poorly managed care and inefficient paperwork. With one form to

file and one system of billing there is no need for highly educated and trained staff to

negotiate cost and maintain diverse, often complicated records. Since the system is

uniform, efficiency in bureaucracy is maximized. This solution alone would save $210

billion in the American system. (Price Waterhouse Coopers 2009)

NO CAPS ON INSURANCE/DENIAL FOR PRE-EXISTING

CONDITIONS

One of the worst practices of the American system has been the caps on lifetime

coverage, and denial of insurance for pre-existing conditions. How this has been allowed

to continue for such a length of time is beyond my understanding. These practices, and

how they contribute to medical bankruptcy, need little analysis. Without a control of

these rules, or their removal, no one in this nation is immune from financial ruin as a

result of illness.

Hopefully, as the healthcare overhaul is enacted within the next few years, these
practices should reach their eventual end. Items contained in the bill that should limit the

effects of these policies are: insurance companies barred from dropping people from

coverage when they get sick; lifetime coverage limits eliminated and annual limits

restricted. Insurers will also be barred from excluding children for coverage because of

pre-existing conditions. Uninsured adults with a pre-existing condition will be able to

obtain health coverage through a new program that will expire once new insurance

exchanges begin operating in 2014. (Smith 2010)

 INACTION
MEDICAID/MEDICARE INSOLVENCY

The government is already in an exposed position. Medical bankruptcy leads to an

increase in Medicaid recipients and as a result a greater burden on the taxpayers as a

whole. When studying medical bankruptcy the individual is emphasized; however the

government should also be considered. Most nations that have single payer systems also

have cost control systems in place, to prevent the country from going bankrupt. In this

economic climate it is difficult to envision Congress also placing pricing limits on

medical services and doctors services.

Without intervention Medicaid and Medicare will be bankrupt by 2018. Health

care costs as a percentage of GDP will be close to 25% by 2025. (Price Waterhouse

Coopers 2008) We cannot sustain this system for much longer. Any course of action is

better than the one that we are on as a nation.

REDUCTION IN BENEFITS/EMPLOYER & INSURANCE COMPANIES

Employers have the ability to negotiate price, but only if the company has a

strong enough purchasing power. Small businesses are forced to take whatever they can

get, while individuals are paying the highest prices for the least amount of coverage

overall. As costs rise employers are forced to shed liability through the reduction in plans

and benefits. We live in a time when individual citizens are unable to pay for healthcare.

Soon, corporations will be unable to pay for healthcare, or what they have in the form of
health plans will be worthless for anything other than the common cold.

In the realm of healthcare there is an intermediary. A woman wants to purchase a

steak, but they are so expensive that she is unable to do so. What she purchases in the

form of health insurance is a middle man that agrees for a lower monthly fee to buy her

steaks for her. It makes sense then that the intermediary is going to want to buy the

cheapest steaks for her so as to pocket the remaining money to pay for the service he is

providing. Since no one knows what the steak costs, the buyer has no idea if what she is

getting is a steak or spam.

The corporations and the intermediarys, (insurance companies) are unable to

continue to provide coverage as cost increases. Soon, more bankruptcies will follow as

the coverage decreases. The graph below depicts the incredible rate at which premiums

have increased over the last few years. Without cost control coverage will be

unsustainable, even through the employer.

 CONTINUED RISE IN COST

Without some change in the dynamic, eventually the government will provide

healthcare by default because no one else will be able to pay for it. Economists expected

health spending to grow at 5.5% in 2009, compared to a drop in GDP of 0.2%, the largest

one year increase in the health share of GDP ever. (PWC 2009)

Finally, the deficit is a function of services the government provides its citizens.

As costs increase and medical bankruptcy continues, we will see an overall burden shift

of medical care from employers, insurers, and individuals to the federal government. The

path we are on will further expand the nature and scope of our national debt. Without

fundamental change in the way we conduct the business of medicine, more families will

file bankruptcy and eventually so will the federal government.

BIBLIOGRAPHY

Associated Press. "Health Insurance Caps Leave Patients Stranded." Breaking News,
Weather, Business, Health, Entertainment, Sports, Politics, Travel, Science,
Technology, Local, US & World News- msnbc.com. http://msnbc.msn.com
(accessed April 30, 2010).

Baker, Laurence , and Linda Baker. "Excess Cost of Emergency Visits for Nonurgent
Care." Health Affairs 13, no. 5 (1994): 162-171.

Brownlee, Shannon, and July & August 2008. "Why Does Health Care Cost So Much?"
AARP The Magazinehttp://www.aarpmagazine.org/health/health_care_costs.html
(accessed April 30, 2010).

Butler, Stuart. "Risking Big Changes with Small Reforms." New England Journal of
Medicine 362, no. 8 (2010): 673-675.

Congressional Budget Office. Economic and Budget Issue Brief. Washington:

Government Printing Office, January 8 2004.

David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhandler

MarketWatch: Illness And Injury As Contributors To Bankruptcy.
Health Affairs Web Exclusive, February 2, 2005

Ikegami, Naoki. "Sick Around the World." FRONTLINE. Public Broadcasting Station,
PBS, October 15, 2007.

Henry J. Kaiser Foundation. "KaiserEDU.org." KaiserEDU.org.

http://www.kaiseredu.org (accessed April 26, 2010).

Institute of Medicine. Care Without Coverage, Too Little, To Late. National Academy of
Sciences. May 2002

Krugman, Paul. "Why Free Markets Can't Cure Healthcare."

New York Times, July 25,2009.

Price WaterHouse Coopers Health Research Institute. Top 10 health industry issues in
2010: Squeezing the juice out of healthcare. Price Waterhouse Coopers.
December 2009
Price WaterHouse Coopers Health Research Institute. The Price of Excess. Price
Waterhouse Coopers. April 2008

Smith, Donna. "U.S Healthcare Bill Would Provide Immediate Benefits."

Business & Financial News, Breaking US & International News | Reuters.com.
http://www.reuters.com (accessed April 28, 2010).

Waters, Hugh . "The Cost of Non Insurance in Maryland." Journal of Healthcare for the
Poor and Underserved 18 (2007): 139-151.

Whitehouse, Sheldon. U.S. Senate. Medical Bankruptcy Fairness Act of 2009. (S. 1624).
Washington: Government Printing Office, August 6th 2009.

Yekagami , Noa. "In Japan, MRI's Cost Less." All Things Considered. National Public
Radio, NPR, November 18, 2009.