Late last month the NY Times had a pretty horrendous article about a family that was losing its house because it couldn’t pay for all the co-pays and co-insurance for its sick son’s care. I’ve just got round to catching up on my reading and I’m pretty shocked. You might think that someone who’d taken the Hippocratic oath might decide not to pile in on this, but you’d have mistaken the ever blackening stone that Syd at Medpundit seems to have in place of a heart these days.

She decides that the problem is that the family ran up credit card debt. And one of her readers jumps in to!

Sounds like the real problem here might be the credit cards.I get one or two notices of bankruptcy a year concerning my patients. They always list the debt that is to be forgiven along with the creditors, and it’s overwhelmingly credit card debt – the major cards and the local retailers that have their own credit cards. That’s probably true for the general population as well – which is why the Times couldn’t find a better example of people with health insurance going broke because of medical expenses alone. UPDATE: A reader does the math: The $5,000 a year quoted comes out to: $416.67 a month, $13.69 a day, 7% of the household’s income. One mistake people do make in managing their financial affairs is that they fail to readjust their living standards downward to account for unexpected regular expenses (e.g., sell the house and car and downgrade).Or are we so rich now that the idea is that not only should an illness not bankrupt but that you shouldn’t have to skip trips to the mall?

The only problem is that Syd and her reader failed to read the bloody article! Here’s what it said and it is quickly apparent that the expenses connected to the kid’s illness massively exceed their max-out of pocket and the $5000 number, almost certainly because many of these expenses are somehow excluded from their insurance coverage.

Then the bills started coming in. After a week in the hospital, the couple’s share came to $1,100 – not catastrophic, but more than their small savings. They enrolled in a 90-day payment plan with the hospital and struggled to make the monthly installments of nearly $400, hoping that they did not hit any other expenses.

But Zachery, who was eventually found to have an immune system disorder, kept getting sick, and the expense of his treatment – fees for tests, hospitalizations, medicine – kept mounting, eventually costing the family $12,000 to $20,000 a year.

So the cost is not the $5,000 a year. That’s just the co-pay on ONE of his drugs. The rest is between $12 and $20K a year, and the poor bloody father is out working 90 hours a week to make just 68K a year (which for those of you counting at home is under $30K for a regular working week). So somewhere between 17% and 30% of the family’s PRE-tax income was going to these costs. That’s way more than any young family is going to have to spare, unless perhaps they have a high-earning physician bringing home the bacon. So either the Times didn’t do any fact checking (and God knows they have a sorry legacy on checking them when it helps conservative loonies and their issues), or this family was financially destroyed by medical bills despite having some insurance coverage. And "some" is the appropriate word here:

As the family went from one doctor to the next, without a diagnosis of the root problem, the insurance company often questioned the expenses. Why did Zachery need four doctor visits or five rounds of antibiotics for an ailment that most children shook off in a couple of days? Mrs. Dorsett spent days on the phone, often in voice-mail loops, and often long-distance, pleading her case.

"Like when they refused to pay for antibiotics when he had pneumonia" last year, she said. "The antibiotics cost $373, and we didn’t have it. But we couldn’t just not give it to him. I knew the review board would come around eventually, but he needed the medicine right away. Finally the doctor gave us samples."

She managed the expenses, like many people, by constantly applying for new credit cards, rolling the debt from the old cards into the new ones, which usually came with low introductory interest rates. In a good year, they would have the rolling charges on their credit cards down to $5,000 or $6,000, but the charges always went up again.

And how does Syd’s reader really think they should do it?  Their solution: Stop going to the Mall! Of course Syd’s "reader" didn’t get to page two where it showed that they family buys its clothes at yard sales. And don’t bother bringing your plastic into Syd’s office for your co-pay. Syd apparently doesn’t know that you can use credit cards to pay medical bills, and that they charge outrageous interest rates, and that that is likely to be where the debt came from.

"Not only are the bills higher, but the way we pay for care has changed," said Elizabeth Warren, a professor at Harvard Law School and one of the study’s authors. "My mother always carried a bill with the doctor, but every dollar she paid went to principal. Today, the doctor takes a credit card, and a family might be paying that off at extraordinary interest rates. So people may recover physically from major medical injury, but may not recover financially."

So yup we have a nation of over spenders, but I don;t think this family fits the pattern. But the bullshit morality aimed at people with medical problems like this by our conservative brethren is just astounding. And I remind you that this does not go on to anything like this extent in other industrialized countries because they have come to the reasonable position that being sick should not be a financial death sentence.

Finally a tax proposal I approve of (even though it would hurt me personally). There’s a commission that wants to lower the limit on mortgage tax deductions.  But of course every elected official in California and New York is freaking out about it.

There has to be a way that this iniquitous tax break (and the one on health benefits) can be removed fairly so that those with the highest incomes don’t get most of the benefit. My proposal would be

1) Abolish all tax relief on second homes (currently you can get a deduction for mortgage payments on a second home with a mortgage of up to $1million)

2) Limit the deduction immediately to the interest on a mortgage that’s equivalent to the median house price in the CSMA (large metro area), so that the number would be bigger in San Francisco and New York, and smaller in Kansas, but then reduce that amount by 5% each year, phasing this out over 15-20 years. (Rather than gong straight to a "modest" house price and sticking with that ongoing)

That would immediately take away the advantage for the high income earners and restore some sanity to the housing market, as well as encouraging people to pay down their mortgages rather than borrow more against their homes for yet more consumer spending.  But it wouldn’t be such a radical move that it would kill the housing market overnight and send us into a recession.

But the panel has come out with average costs that clearly ignore the realities on the ground in more expensive states — The new cap would be linked to Federal Housing Administration mortgage limits set county by county each year based on the cost of a "modest” home. Those limits range from $172,632 in low-cost states to $312,895 in the most expensive counties, such as Santa Clara. Around here the median house price is closer to $750,000.

The trick is getting this number to stall so that housing becomes more affordable, the tax iniquity is not just reduced but eliminated altogether, but that it’s one in a way that doesn’t penalize people in more expensive states and wreck the whole plan.

Still it’s amazing to see that this Administration has anything to do with a plan which doesn’t give extra benefits to the very rich.

And of course health benefit tax deductibility is next, as this Managed Care magazine article discusses. Note the extremely sensible comments from Alain Enthoven and Uwe Reinhardt at the end of the article.

UPDATE–An interesting wrinkle suggested by Uwe. If employers had to put the amount they spend on health insurance on the employees’ W2 would they put the average they spend, or what they actually spend per employee?  Anyone who’s bought health insurance knows that a typical small company is quoted the amount per employee, so a 50 yr old person with a family costs a whole lot more than a 20-something single. Of course most employees don’t realize that. But to take this to its logical extreme for self-insured companies,  "premium" costs per se don’t exist. Instead costs are exactly equal to the actual costs of care for each employee. So should their employees see the total amount spent on their care, and then be taxed on that?  If you have a $100,000 hospital stay, should you pay tax on that money? More interesting conundrums to be worked out here too.