By JOHN CARREYROU The Wall Street Journal, Page A1 November 29, 2007

MERCED, Calif. – One day in late July, Jim Dawson happily returned home. He had spent the previous five months in the hospital battling an infection that nearly killed him. The phone rang shortly after Mr. Dawson and his wife, Loretta, entered their house.

It was the hospital. California Pacific Medical Center was calling to remind the Dawsons that they owed it $1.2 million.

Mr. Dawson, 61 years old, had health insurance through his employer, but had maxed out his plan’s $1.5 million lifetime cap halfway through his long hospital stay. In addition to the bill from CPMC, Mr. Dawson owed tens of thousands of dollars more to scores of doctors who were involved in his care. Mr. Dawson and his wife’s combined assets totaled a fraction of their medical debt.

“I had never thought in a million years that anything like that could ever happen,” says Mrs. Dawson.

As spending on health care has climbed to almost $2 trillion a year, or 16% of the U.S. economy, the number of Americans burdened with massive medical bills has soared as well. According to a 2005 survey by the Commonwealth Fund, an estimated 34% of adults aged 19 to 64 face problems with medical bills or have accrued medical debt. A majority of those people – 62% – had health insurance, the survey found.

Million-dollar medical bills like Mr. Dawson’s, while still unusual, are becoming more common as insurance policies once thought to provide catastrophic coverage prove inadequate when it comes to high-cost illnesses.

Part of the problem: Even as medical progress and new technologies raise health-care costs, health plans have been slow to raise their caps. Mr. Dawson’s $1.5 million cap was relatively generous by today’s standards. The Segal Company, an employee-benefits consulting firm, says the average health-plan cap among companies it advises is $1 million a person – the same as it was in the 1970s, when the purchasing power of $1 million was the equivalent of nearly $6 million today.

Original Article from the Wall Street Journal (opens in a new window - subscription required).