For millions in U.S., a harsh reality: It's not safe to get sick
As companies cut expenses, or fail, Americans lose their health insurance. Sometimes they lose their health, too, and then their savings.
Editor's note: The following story ran Oct. 25, 1991, on Day Six of the nine-day "America: What went wrong?" series published in the Inquirer.
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Bobby Jean McLaughlin of Charleston, W. Va., mother of six and grandmother of six, is a multiple statistic in America's new economic order.
Mrs. McLaughlin lost it all.
She lost her job, her health insurance, her pension, her savings and, in the end, her husband.
She lost her job as a $6.20-an-hour department store manager, after 18 years, as a result of the prevailing corporate financial craze.
With it, she lost the health insurance that had paid the family medical bills.
And she lost her pension when she took the lump sum payment set aside for her retirement and was obliged to use it instead to pay hospital and doctor bills.
She had little choice. Her husband of more than 35 years, Joseph, worked in a small bakery in Charleston that did not provide health insurance for its employees.
He was suffering from emphysema, his condition deteriorating with each passing day.
When he no longer could breathe without the aid of a ventilating machine, he was forced to quit. Recalled Mrs. McLaughlin:
"It just wiped out my savings. I couldn't tell you the amount of money we put out. He was using those tanks (of oxygen). And it was just breaking us up, cause they were $38.50 every time they came with one.
"I tried to get help with the medical bill, but they look at you like you are dirt under their feet. We were always kind of independent. He worked at the bakery 30 years. He worked even after the doctor told him his lungs were bad enough he could get disability. "
Last December, Joseph McLaughlin died.
No one, not in the federal government, not in private industry, keeps an accurate count of the Bobby Jean McLaughlins.
But their numbers already are in the millions. They are the anonymous middle-class health-care casualties of high-stakes corporate finance in America, the victims of a government rule book that looks after the demands of deal-makers and ignores the needs of ordinary citizens.
They are not poor enough to qualify for state or federal health-assistance programs.
They are not affluent enough to be able to afford the cost of private medical insurance.
And so they go without - joining the ranks of an estimated 40 million Americans who have no medical insurance. That does not take into account more millions who are underinsured.
Those numbers are bound to grow - unless the U.S. government reverses policies.
- U.S. Labor Department surveys of large and medium-size companies that offer health insurance for 31 million employees show that the percentage of those employees with fully paid coverage for themselves alone fell from 75 percent in 1982 to 48 percent in 1989, the latest period studied. (Large and medium-size companies employ 100 or more people.)
- At those same companies, the percentage of employees with fully paid coverage for themselves and members of their families fell from 50 percent in 1982 to 31 percent in 1989.
- The average monthly employee contribution for individual health-care protection rose from $9 in 1982 to $25 in 1989 - an increase of 178 percent. During that same period, the average weekly paycheck went up 25 percent.
- The average monthly employee contribution for combined individual and family health-care protection rose from $27 in 1982 to $72 in 1989 - an increase of 167 percent.
- Because part-time workers seldom receive fully paid fringe benefits such as health insurance and pensions, their numbers are growing exponentially. Companies like this arrangement because it reduces costs. At Wal-Mart, now the nation's largest retailer, 40 percent of the workforce is part-time. At Kmart Corp., it is 47 percent. At Sears, Roebuck & Co., it is 55 percent.
- As a result of the largest increase in corporate bankruptcies since the Great Depression, millions have lost their health insurance protection. The bankruptcy surge is continuing unabated.
- Faced with steadily rising expenditures for the health-care costs of retirees, companies are curtailing or eliminating a benefit once promised for life. Millions of future retirees will see their coverage disappear. The government's General Accounting Office estimates that companies paid $9 billion in retiree medical costs last year, but should have set aside $32 billion for future payments. They did not.
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The number of workers losing their health-care protection grows daily as one company after another dismisses employees to trim expenses, eliminates jobs while seeking to reorganize in Bankruptcy Court, or goes out of business.
For a lucky few workers across the country in that situation, the government rule book - as crafted by a succession of lawmakers and presidents, Democrats and Republicans - offers some relief.
Call it the hospital legal lottery.
If you win, your medical bills are paid.
If you lose, you pay your own medical bills.
But very few win.
Here is how it works:
Let's say the company where you have been employed so many years decides to restructure itself to cut its costs. As a part of the realignment, your job is terminated.
Suddenly, you lose the health insurance that has been paying your medical bills.
You hire a lawyer and sue the company.
If you are like most workers, you will lose, which means you will be responsible for all those medical bills.
If you are among the lucky few, you will win and recover, if not your health, at least the money you lost.
But the process can be expensive and time-consuming.
Ask Roy Mahon Jr.
In 1984, Mahon went to work as a salesman in Garden City, Kan., for Massey- Ferguson Ltd., the Canadian company that was one of the world's largest manufacturers of agricultural tractors, combine harvesters and other farm equipment.
"I was a salesman for six months," Mahon recalled, "then I was moved up to store manager. "
A year later, Massey-Ferguson executives followed a course charted by so many U.S. corporations. They reorganized the business, as they put it at the time, to "achieve profitable growth through acquisition. "
First, in May 1986 they created a new company called Massey Combines Corp., which took over the money-losing combine operations, including the dealership that employed Mahon in Kansas.
The rest of the business operations stayed with the old Massey-Ferguson, which gave itself a new name, Varity Corp., and sold stock. The proceeds were earmarked for the acquisition of businesses.
To soften the impact of the change, Massey-Ferguson executives came up with a name to describe the corporate realignment.
They called it "Project Sunshine. "
The new Massey Combines got more than just the depressed combine business. It got:
About $200 million in debt; about 1,500 employees, including Roy Mahon, and the financial obligation to pay the medical claims and other benefits of retirees and the widows of retirees of the original Massey-Ferguson.
The result was predictable.
On March 4, 1988, Massey Combines Corp. went into receivership in Canada, the equivalent of Bankruptcy Court. The company fired all its employees and notified retirees that their health and other benefits were being terminated.
Roy Mahon remembers that time well.
Earlier in the year, he said, "I was working on a new parts counter on our building. I stood up and I thought I had sprained something real bad. Turned out I had an aneurysm and it gave way.
"That night I was in the hospital. Two days later I had my leg taken off. Consequently, they found out I had an aneurysm in each groin and my aorta was about to blow. . . .
"So basically the operations were the amputation of the left leg, then aorta surgery, and they went in and rebuilt the area on the right leg. . . . (The surgeon) spent 7 1/2 hours on that leg. "
Soon after Mahon returned home to recuperate, he discovered something amiss at Massey Combines.
"I was wondering what was happening because one of my claims went to the administrator and they sent it back not paid," he said.
"The next thing I knew I got a telephone call from my former boss who said the company went belly up. They were bankrupt and everything was gone. . . .
"That was it. I was left hanging with about $65,000 to $75,000 in hospital bills. "
Eventually, Mahon said, Kansas Medicaid paid all but $18,000 to $20,000 of the bills. He had to pay the rest.
"I had to cash in my IRA account to survive," he said. "I sold one of my cars. In August 1988, I sold my house to get what I could get out of it because I had to have funds to live on. I had to get these bills down.
"But consequently I have absolutely no credit whatsoever. . . . Financially, I'm now at the bottom. "
A philosophical Mahon - the assets he accumulated over a lifetime parceled out to pay his bills - summed up his situation:
"I found out very quickly if you are 56 or 57 and have one leg and are trying to get a job, forget it. I had an extensive sales background. But no one was interested after I had the leg removed. I am sorry to say it but it's the facts of life. "
That was early in August of this year. Days later, his situation - at least his economic condition - had changed.
He won the health-care legal lottery.
Not long after Mahon and the other Massey Combines employees and retirees lost their health insurance, they retained a law firm to file a class-action lawsuit against Varity Corp.
They argued that the creation of Massey Combines was a sham transaction intended to allow the company to escape its obligations to provide health insurance for current and retired employees.
As the case was about to go to trial in U. S. District Court in Des Moines, Iowa, Mahon and several other more severely disabled workers reached an out- of-court settlement.
Mahon, who now lives in Fort Worth, Texas, said he was uncertain of the exact amount of the settlement, but that his remaining hospital bills were to be paid and he was to be reimbursed for other expenses and losses. He added:
"I just wish this had never happened. If they had done what they said they were going to do, this would have been a lot easier on us. I would probably have come out in a lot better shape. . . .
"I have no credit. Nobody would probably give me credit now. If I went down to buy a house today they would laugh at me."
As for the other nearly 100 employees who were part of the class-action litigation, a jury, after a trial in September, found Varity liable for $10 million in actual damages and $36 million in punitive damages.
But it could be years before those employees see any money. Varity immediately announced its intention to appeal the verdict, saying that it would "move to set aside the verdict based on its view that the verdict is inconsistent with the law and facts and, if necessary, (would) vigorously pursue an appeal of the decision."
Varity Corp., which was created out of the same Canadian parent company as Massey Combines, contends that it has no responsibility for Massey Combines' former workers.
The workers in the class-action lawsuit fell into several categories. Some, like Mahon, had incurred medical expenses after the new Massey Combines was established. Others had disabilities that went back to the old Massey- Ferguson.
And then there were the retirees, who maintained that the old Massey- Ferguson had made a commitment to provide health insurance until they died, a commitment that workers in many businesses are led to believe is irrevocable.
It is not.
In any event, the economics of it all puzzle Mahon.
"Can you imagine," he asked, "what this whole thing is going to cost, all the lawyers' fees? It's unreal. The odd part of it is that Massey-Ferguson had a reputation for taking care of their people. If you said a bad word about Massey-Ferguson, the fight was on. They had that kind of loyalty. But you won't find that any more."
Varity Corp., for its part, is prospering now.
In March 1988, the same month that Massey Combines went into receivership, Varity reported that it "achieved its highest earnings from operations since 1976. " That was $50.6 million.
Last year, it did better: $92.1 million in profits.
The rising profits, though, had a down side: Corporate income taxes.
But just as the old Massey-Ferguson came up with a solution for its failing combine business that was also a solution to its burdensome benefit commitments, Varity came up with a solution to its tax problem.
On July 31 of this year, the Canadian company, which could trace its corporate ancestry back to the first Massey manufacturing plant in 1847, reincorporated in Delaware and became a U. S. company, relocating its world headquarters from Toronto to Buffalo.
So what's the tax advantage for a Canadian company to become a U.S. company?
Remember the net operating loss deduction, the writeoff that The Inquirer wrote about earlier this week? The one that has soared out of control, going from $9.4 billion in 1980 to $51.4 billion in 1988 - an increase of 447 percent?
That's the deduction that allows companies to subtract prior-year losses from their taxable income for up to 15 years in the future - and avoid paying corporate income taxes.
Listen to how Varity, in the reports filed with the Securities and Exchange Commission, explained the benefit of its new American home:
"The amount of the United States net operating loss is significantly larger than the net operating loss for Canadian tax purposes. The period that the net operating loss may be carried forward from the year of incurrence for Canadian tax purposes is 7 years, whereas for United States tax purposes it is 15 years. "
What kind of money is at stake here?
Varity has a net operating loss left over from past years of more than $1 billion.
More than half that sum is in this country, meaning the company can escape payment of $170 million or so in U.S. income taxes.
Let us summarize:
A Canadian company divides in two, with the slumping business operations and the obligation to pay health-care benefits to one group of workers and retirees dumped into one company (Massey Combines Corp.) and the thriving business lines folded into another (Varity).
After Massey Combines goes into receivership, leaving its American workers and retirees to fend for themselves, Varity moves to the United States to escape payment of U. S. income taxes by taking advantage of the net operating loss deduction.
At the same time that corporations have mounted stiff opposition to claims by former employees or retirees for medical benefits, they are systematically scaling back the health-care coverage they already provide.
The people who write the government rule book have a solution.
Congress, which wrote the rules that encouraged the corporate restructuring that led to the collapse of many businesses, the realignment of others - and in the process the elimination of health-care benefits for millions of workers - now is at work on legislation that it promises will guarantee medical insurance for everyone:
Compel all employers - large and small - to provide health insurance.
But employers say they can't afford it.
Neither can Bobby Jean McLaughlin.
For 18 years, Mrs. McLaughlin had worked for Heck's Inc., a regional discount department-store chain based in Nitro, W. Va., near Charleston.
She began as a clerk at the Charleston store on Oct. 23, 1967; worked her way up to become manager of the toy department, and, for the last six years of her employment, was manager of the cosmetics department.
The retailer was prospering, growing from a single store in downtown Charleston to a regional chain with more than 120 stores scattered across the middle-Atlantic states.
Then the new management took over. That was 1983. And the business went awry.
The layoffs came first, as the jobs of a select number of employees were eliminated. Next came individual store closings. And finally bankruptcy and the death of a retailer and more than 7,000 jobs.
The layoffs began in October 1985.
On Tuesday, Oct. 15, 1985, just 12 days short of her 18th anniversary at Heck's, Mrs. McLaughlin and another employee were summoned to a meeting with the store manager and district manager.
"They told me that my job was eliminated," she said. "They eliminated two department managers in each store. . . . You go all your life thinking something like this couldn't happen. "
Mrs. McLaughlin wondered whether she could work as a clerk instead of a department manager.
"I even asked them if they had any kind of job in that store that I could do . . .," she said. Their reply: "No, ma'm."
"And I said after (all these) years you can't find a job for me in this store? " The answer: "No, ma'm."
Mrs. McLaughlin, 57, once described her years at Heck's this way:
"I was at work every day and was never late. . . . I was never disciplined. I received good evaluations. . . . I was never reprimanded or told that my work was unsatisfactory. "
Nevertheless, the firing was swift and immediate.
She was told to get her things "and leave the store," she said. "They treated you like . . . you done something wrong after working for them all those years. . . . It hurts you when you work in a place for . . . years and they treat you like that. "
Now, not only was Mrs. McLaughlin out of work, but the health insurance that paid her husband's costly medical bills was gone. Private insurance was unaffordable.
Eventually, he had to quit his bakery job and was hospitalized twice, in 1988 and 1989. "I think he was in there about seven days the first time," she said, and "it was about 10 or 11 days the last time. "
On the second stay, he spent about five days in the intensive care unit. ''There was one test they run on him," she said, "it was close to $1,000. "
In August 1990, when an Inquirer reporter interviewed the couple in their home, McLaughlin, who despite his serious illness was given to quiet witticisms, was tied to an oxygen machine by an umbilical cord. It was long enough that it allowed him to walk slowly through the rooms of their one-story house.
He was disconnected from the life-support system only when his wife had to drive him to the doctor's office. "It's really hard on him," she said at the time. "It's just gotten that bad in the last year or two.
"I've been trying to pay the hospital a little at a time," she added. ''The guy from the hospital calls every month if I'm late. . . . The medicine runs me a fortune. It just wiped out my savings. "
Three months later, Joseph McLaughlin returned to the hospital for cataract surgery. "He did real well with it," his wife said.
The following month, on Dec. 7, he died at age 59.
Now Bobby Jean McLaughlin works full time at the bakery - the same bakery where her husband spent his working life. The pay is at the minimum-wage level.
And she is confronted with a hospital bill that she said has "something like a balance of $24,000. " It was turned over to a collection agency.
The bill collector "was calling me quite a bit," she said. "And he would call and ask to speak to Joe. After I told him my husband had died, he would still call me and ask to speak to Joe.
"I do OK, you know, just paying my utility bills and paying my property taxes and stuff like that. But I just can't pay this hospital bill. "
"It has made a nervous wreck out of me."