Workers panic as employers--and med insurance--fail

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For Workers, Medical Bills Add to Pain as Firms Fail

By IANTHE JEANNE DUGAN * DECEMBER 6, 2008

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

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., , 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. , 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,

, 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. .

Now, the s say they have $40,000 in medical bills, are two

months behind on the mortgage and are selling the BMW. Mr.

took a job selling cars, earning about $3,000 per month -- a quarter

of his former pay. Ms. '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.

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.

, 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 , 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. says. " I suddenly have no insurance. "

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