More Exposed than You Might Think

Two years ago, most people didn't pay much attention to the issue of counterparty risk. Nowadays, it is a constant source of worry for lenders, depositors, investors, and others.

It's one thing to lose money because you made a bad bet. It's an altogether different kettle of fish, however, when you take a hit because someone you do business with suddenly -- and unexpectedly -- goes under.

Yet while most people are familiar with the risks that stem from traditional financial interactions, the current unraveling has made it clear that people are exposed to all sorts of other relationship-type risks.

Some tenants, for instance, have found themselves out on the street, even though they paid their rent on time, because their landlords have been foreclosed upon.

Those who work for others are also vulnerable in ways they might not have thought about. In "For Workers, Medical Bills Add to Pain as Firms Fail," the Wall Street Journal details one tragic example.

When Archway & Mother's Cookie Co. told employees in an October letter it would "go out of business immediately," some workers frantically sought medical care while they believed their insurance would still cover the costs.

In Ashland, Ohio, a pregnant employee had labor induced before her due date. Another worker bought a $6,000 insulin pump for her diabetic daughter. "I called my doctor at home and said, 'I need to have my gallbladder removed this weekend,'" recalls Janet Esbenshade, a 37-year-old mother of two who lost her job packing cookies.

Jeff Austen, former Archway oven operator in Ohio, is running a committee 'The Burnt Cookies' to share information among ex-employees. He said he has accumulated $2,000 in medical bills.
Those employees and many others ended up saddled with huge medical bills anyway. Archway was self-insured -- and when it filed for bankruptcy on Oct. 6, there wasn't enough money in its coffers to cover hundreds of thousands of dollars worth of outstanding health-care claims along with all its other debts.

Workers weren't eligible for Cobra, a federal act that gives certain laid-off employees the right to temporarily continue health-care coverage at group rates. That's because Cobra doesn't apply when a company terminates its insurance plan.

The Archway saga reflects the human toll of the credit crunch, as companies increasingly shut down because they can't get financing. Some are abruptly eliminating insurance and leaving laid-off workers with bills for medical expenses incurred before the shutdowns, a trend that is exacerbating health and money problems for tens of thousands of people nationwide.

Catterton Partners, a Greenwich, Conn.-based private-equity firm that owned 72-year-old Archway, scrambled to find financing as it struggled with surging costs of fuel and cookie ingredients. But credit had dried up, a person close to Catterton says, forcing Archway to close down. It filed for Chapter 11 protection, liquidated and laid off all 673 full-time employees.

Now that Archway is bankrupt, all its assets will be divided among creditors, including those with health claims. Archway bankruptcy documents list liabilities of $143 million and assets of $92 million.

This week, the bankruptcy court approved a $30 million sale of Archway's assets to snack-maker Lance Inc. of Charlotte, N.C. Separately, Kellogg Co. bought Archway's Mother's Cake & Cookie Co. unit for $12.1 million.

A person close to Catterton said that decisions made after the closure were ruled by the court, adding that the sales may help relieve some of the problems caused by the bankruptcy. "While there is clearly a human toll that has been taken on the people, there is a light at the end of the tunnel," this person said.

Lance says it plans to reopen the bakery in Ashland, a small city between Columbus and Cleveland where Archway was one of the biggest employers, with about 300 workers. Some could be rehired. But that does nothing to help reverse the havoc caused by the sudden loss of insurance.

A growing number of people are facing this issue as their employers shut down. The number of liquidations under Chapter 7 of the bankruptcy code surged 62% to 13,002 in this year's first half compared with a year earlier. Under Chapter 11, another 3,470 companies filed in that period, but many are liquidating rather than going through the more-traditional reorganization. At companies that have filed for bankruptcy protection, the number of "mass extended layoffs" -- more than 50 people unemployed for at least a month -- doubled in this year's third quarter, the U.S. Department of Labor says.

The government doesn't track how many people wind up uninsured. When companies file for reorganization under bankruptcy rules, they often continue their insurance coverage. Companies that liquidate usually terminate these benefits.

In May, Jevic Transportation, a New Jersey trucking company owned by buyout firm Sun Capital Partners Inc., told employees in a letter that it was shutting down and terminating insurance. "Continuation of these plans via Cobra is not an option since Jevic no longer provides any group health plan to any employee," a human resources official wrote.

"My whole world ended when I opened that letter," says Elizabeth Vaughn of Bordentown, N.J.

Her husband, D.S. "Sam" Vaughn, a 63-year-old Jevic driver, put off chemotherapy treatments when the company closed, she said. He later went to a government-subsidized clinic, Ms. Vaughn says, to get medicine for heart disease. She said he was ashamed.

"After he was laid off," she says, "he'd just sit at the kitchen table saying, 'I'm sorry.'"

Mr. Vaughn died over the summer of pneumonia. His obituary in the local paper, written by his wife, said: "He worked for 15 years for Jevic Transportation until they closed their doors and broke his heart."

A Sun Capital spokesman declined to comment.

In Columbus, Ga., Edward Griffin, 45, was called into the service bay of a Bill Heard Chevrolet in September, along with hundreds of colleagues. An executive boomed over a loudspeaker that the national chain of car dealers, which had survived the Great Depression, was closing. About 2,700 people were laid off in all, and their insurance was terminated.

Mr. Griffin, a finance manager, was in a panic. He had bought a $60,000 BMW the day before. He had four children, including a son with autism, and a mortgage on a 5,000-square-foot house. His wife, Michelle, needed a hysterectomy. She had put it off as she tried to fill big orders for a clothing-manufacturing company she owned.

She went to the hospital the next day for surgery. "I wasn't out of the recovery room for 20 minutes when we heard that we had no insurance," says Ms. Griffin.

Now, the Griffins say they have $40,000 in medical bills, are two months behind on the mortgage and are selling the BMW. Mr. Griffin took a job selling cars, earning about $3,000 per month -- a quarter of his former pay. Ms. Griffin's company went under. Their children are "scared to death," she says.

A lawyer for Bill Heard didn't return calls for comment.

In October, when Starla Darling heard Archway was closing, the 27-year-old blending-table operator was due to deliver her second child in a few days. Fearful of losing her insurance coverage, she persuaded her midwife to help induce labor that day.

"I was scared," Ms. Darling says. "I didn't have any other options."

Doctors performed a cesarean section. Ms. Darling recovered, and discovered she was responsible for about $20,000 in medical costs.

Since she was technically on maternity leave, she couldn't collect unemployment benefits. Her disability check, however, wasn't arriving because Archway was out of business. She fell behind on bills and soon received a disconnect notice from the electric company and an eviction notice from her landlord. She says the local high school helped pay the family's rent out of a fund it raised for Archway workers.

Jeffrey Austen, who lost his $17.53-an-hour job as an oven operator, is running a committee to share information among ex-employees, called "The Burnt Cookies." He says he accumulated about $2,000 in medical bills in preparation for shoulder surgery. Now, he is collecting unemployment checks of $298 a week. Insurance, he says, would cost $637 a month.

Mr. Austen, 50, filed a suit in a Delaware federal bankruptcy court accusing Archway of violating the federal Worker Adjustment Retraining Notification law, which requires 60 days notice of a layoff. His lawyers, Jack Raisner and René S. Roupinian, of Outten & Golden LLP in New York, are seeking back pay for all workers.

Catterton officials declined to comment on the lawsuit.

Catterton bought Archway from Parmalat Dairy and Bakery Inc. in 2005. A person close to the private-equity firm said it tried to make the firm more profitable but had unforeseen challenges and a credit crunch that finally forced it to pull the plug.

Until the company shut down, Archway had deducted health contributions from employees' paychecks. The contributions, along with the employers' share, go into a pool that funded Archway's insurance plan. Blue Cross and Blue Shield was the administrator of the plan, so employees and doctors would file claims with the insurance firm, which would determine if they were valid and then pay them. Archway would then repay the insurer. Typically, this process could take a couple months to complete.

The bankruptcy created chaos among laid-off workers whose claims are only now working their way through the system for visits as far back as September -- and some earlier.

Wendy Carter, a 41-year-old former packer, had a hysterectomy in mid-September, and says she accrued $15,000 in medical bills that weren't paid. She also was on disability, so she couldn't collect unemployment insurance. She says she recently wound up applying to the Salvation Army to get $102 to help pay the rent.

Similarly, Nadine Deck says she was out on disability with a chronic breathing disorder. When Archway shut down, she stopped receiving disability checks. So she turned to unemployment and received checks over four weeks. But the government stopped paying, saying she couldn't collect while on disability. The government now wants its $900 back, she says.

"The government is bailing out banks, but who's going to bail out little companies like Archway and help us?" asks Ms. Deck, 55, who worked for 23 years at the cookie company as a packer and machine operator.

Ms. Deck has missed three mortgage payments on a two-story bungalow where she lives with two children. A social agency is helping with the utility bills and the state is paying for her epilepsy medicine.

Some employees say they have had to cut back on costly prescription drugs. Ms. Esbenshade, the cookie packer who had her gallbladder removed, says she didn't buy her six-year-old daughter's asthma medicine after Archway closed, because she lacked $100 to pay for it. They have since received a state-issued medical card to help cover the cost of the medicine.

Darlene Miller, a 57-year-old packer, no longer has insurance to cover $300 a month for medications for high blood pressure, thyroid problems and a heart condition. So she is cutting each pill in half.

"My doctor is going to chew me out when I tell him, but I didn't have a choice," Ms. Miller says. "I suddenly have no insurance."

Comments

[roger]

A man true no fault of his own must seek help at a government
subsidized clinic & feels ashamed.3 other men "billionaires"
fly to WA. in their private luxurious jets to beg billions in
tax payers money & disclaim any responsibility for their stupidity,
morality turned on its head.Me thinks we need more socialist fools
to correct these monstrosity's

[Fu]

> Mr. Griffin, a finance manager, was in a panic.
> He had bought a $60,000 BMW the day before...
> His wife, Michelle, needed a hysterectomy.

Anyone else see a problem with this?

Anyway, why don't these well-to-do people have any savings? He was making 12K a month.

[Allan]

I feel sorry for these people, but the hard truth is that they brought it on themselves by not saving enough, or to be more precise, probably not saving at all. Besides, as Fu points out, some of them are quite daft. A finance manager should have known better than to buy a BMW in the current scenario, especially when his wife's company was in trouble!

[roger]

Anyone else see a problem with this?
YESSSSSS the American mentality is scewd beyond comprehension!!!!

[linda]

And how many more people will struggle with medical bills and lack of health care before this country finally wakes up and demands single-payer health care? Things are only going to get worse until then. Sure, the one guy with his expensive car sounds clueless, but the real problem here is health care (or lack of it). No matter how much you have saved, one serious illness can eventually put you into debt.

[Independent Accountant]

I read this article and thought of posting on it. What especially irritated me was that we can find trillions to bail out Wall Street overlords and nothing for the peasants. The idiots in Washington don't realize how serious this is. They are turning the US into a country of socialism for the rich and "poisoned cake" for the rest of us.

[Allan]

Instead of trying to find ways to get everyone covered by medical insurance, the US government should work on getting the cost of healthcare down. Your costs are ridiculous. In India, the cost of heart bypass surgery is about the equivalent of USD 3000 to 4000. A normal delivery in a hospital costs about USD100 to USD200, a caeserian section USD 600 to 800. These are costs in private hospitals - in government hospitals it would be about 10% of private costs (you have to buy the medicines)

And if you're wondering, the success rate (in private hospitals)is probably just a smidgen lower than in the US.

[Truesincerity]

Why is health care so expensive in this country? And, it is becoming abundantly clear health care should not be based on being employed. You will probably be with out employment sometime in your lifetime, and right now MANY are unemployed. This is a healthcare crisis. First the cost issue should be addressed and next getting every citizen affordable health care.

[david]

I'm a physician and am fairly conservative politically, but, I must say, this story(and countless others like it)are horrific. While I'm not in favor of a single pay system under normal conditions, these are not normal conditions. If the unemployment rates jumps to 10-14 percent, then 'what?' There are many pros and cons. Are system is not that bad, and the English system is not so great(try getting Aricept for Alzheiemr's under in England... good luck with that vis-a-vis government paying for it). Certainly a single pay system would simplify my life, cutting my hours a bit, letting me spend a few more minutes at home.

The thing is this: if we are moving into a depression, then socialized medicine makes sense. We need all the safety nets we can string up. From a purely selfish point of view, I'm sick of all the paperwork and 90 hour work weeks as well.

[TheComingDepression]

1 million people a MONTH will be laid of in the US, check this article
http://www.thecomingdepression.blogspot.com

[Omitted Kingdom]

Regarding Aricept, it was brought to market in the US exceedingly quickly, through a speeded-up FDA approval process, because Alzheimer's patients families demanded it. I believe it was chronicled in JAMA or NEJM. What clout do British families have available to exercise?

I attended the American Medical Writers Association national conference in Atlanta, Georgia, two years ago. During a panel discussion by the Deans of Medical Education from Emory and Georgia Tech, the consensus was that pharamacy corporations were going to be banned from contacting medical school students and pushing their products. Plus medical school students and physicians who were going to have to stand up to the insurance corporations on behalf of their patients. MIchael Moore's movie Sicko also came up tentatively for discussion.

[roger]

There is nothing socialistic about exploitation of the
proletariat for the enrichment of of the Elite,to believe
that we have socialism for the rich displays a monumental
lack of knowledge in Political Science,But then ignorance
in this country about political affairs is also Monumental,
after all a crock got into the White house by cheating and on
the second run he was voted in by a majority of idiots.NEED MORE PROOF?

[farang]

"...cutting her pills in half..." But it is "far left" to push for universal health care, like every other industrialized, intelligent nation in the world has? Label me a bleeding heart liberal, but I feel for these folk. Their my fellow citizens, and they need help, not criticism now.

Oh, sorry, I forgot: John Thain NEEDS a ten million dollar bonus for running his company into the ground.....

And yes, it does seem like many do not plan well for a "rainy day", but listen Your president told you to "go shopping" after the 9/11/01 military/industrial coup, maybe they thought they were being "good Americans" by consuming?

Tell ya what: Set interest rates high enough to encourage people to SAVE, and maybe they would do so. I feel like a fool right now leaving my cash in accounts "earning" less than 2% interest. Hell, I had one CD I kept letting roll over (with Bof A) for years, until I got the last notice they would "pay me" ".10% interest."

When I called to ask WTF is THIS? the woman didn't even know what the decimal point meant, she kept telling me "it is one percent, not one tenth", like I couldn't see the dot.

People, the banks and government ( Sir Greenspan the Fool) did all they could to discourage savings, so let's not be too critical of folks that fell for it, ok? Not all of us have that "vision thing", ya know?