Medical Expenses A Common Cause Of Bankruptcy
When Americans think of a person trapped in enormous amounts of debt, inevitably they think of irresponsibility. They think of fast cars and fancy stereo equipment. They think of people living the high life who could not afford it. In short, they think of a deadbeat. If statistics are any real measure, this impression could merit a change – and a touch of sympathy.
Far from financial irresponsibility, medical expenses are among the most frequent causes of families falling into debt and eventually filing for bankruptcy. The precise percentage of medical bankruptcies is in dispute. However, it is generally acknowledged to be a significant number.
Estimates for the number of “medical bankruptcies” have a wide range. A Northwestern University researcher has placed the figure at 17 percent of all bankruptcies. A group of Harvard researchers have recently increased their estimate to more than 50 percent. According to a Federal Reserve report, households with high medical debt are 28 times as likely to file for bankruptcy as other households. Most recently, an August report from the UCLA Center for Health Policy Research estimated that one in seven Californians carries some form of medical debt. With the nation gripped in a discussion about public financing of medical care, the number of medical bankruptcies has become a topic of note.
Medical bankruptcy can arise in several ways. The most common and obvious is the medical bill charged to the ill patient. When the patient personally suffers a chronic disease, deals with a condition that requires expensive treatment, or must pay for pricey medication, then it can be easy to run up thousands of dollars in costs. Health insurance can help, but sometimes is not enough. However, there are other ways that medical expenses can drive a person or family into debt.
Many times the medical benefit is not for medical procedures performed on the person himself. They stem from helping to finance the medical care of a loved one. Sometimes this means caring for an elderly father or mother. Sometimes, tragically, this means caring for a sick child.
Also, some researchers describe “hidden costs” of medical bankruptcy. Often, these expenses consist of medical expenses placed on credit cards or paid on credit in some other way. This is an unwise thing to do. Once the expenses are placed onto the credit card, they become a target for interest and fees.
While medical expenses drive many people to bankruptcy, that is not the only option for handling overwhelming medical debt. Other options exist that can help a debtor take care of their debt before reaching that point. Among these methods are credit counseling, debt consolidation, and debt settlement. Each method can help debtors resolve debt and rebuild their financial health.
“Medical expenses are a common reason that people come to us,” said Heath Tudor, community liaison for Resqdebt, a debt settlement provider in Allen, Texas. “The unfortunate thing is that it randomly strikes good people. The fortunate thing is that it gives us the opportunity to help good people.”
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I totally agree with this. My husband was laid off last november and I ended up having 2 tests run at the hospital in december…very expensive tests. I have insurance (though, not the best and with a higher deductible since hubby is out of work) and my balance after insurance was close to 2000 dollars. that may not seem like a lot, but, when you are down to 1 paycheck and unemployment…it is a lot. I called the hospital and asked if they could further reduce my bill and they informed me that if I did not have insurance at all, they would wipe the bill clean. but, because I have insurance, they wont help me at all. (btw: I had only asked if they would reduce it a few hundred, not wipe it clean) I had to set up a payment plan of $100 month (and some months, that is very tough) so they wouldn’t send me to collections. every other month, I call and ask again if they can reduce my bill – but they wont because I’m insured. now, my bill was only 2000…I can only imagine what people go through after major surgeries, or cancer treatments.
My daughter has cystic fibrosis and both my wife and I are grateful that we are in the Navy. Even though Medicare, etc, takes care of a lot of expenses for CF treatment, I don’t know how much, and it seems like it can be tricky. I know that someday she will probably need a lung transplant, and if she’s on her own by that time, she will need many resources since she won’t be under our Navy insurance anymore.
This is sad to me. I don’t want my daughter in such a bad place because she has a genetic disease she didn’t ask for. Thank you for bringing this topic to light.
Great post. We have very good insurance. My husband is a public school teacher so he has the benefit of a union fighting on his (our) behalf to make sure of that. However, we still pay 13% of our gross income to our health care premiums alone, and then we have a $40 copay every time we step foot in a doctor’s office. This year alone, our monthly premium cost has gone up $90 a month, coming straight out of our grocery budget–forget about entertainment or any other extras. Our current health care system is unaffordable! Beyond those basic costs, we have spent thousands on tests that doctors don’t think twice about assigning. An MRI costs $2000 and insurance doesn’t cover all of it. A CT Scan costs $1000 and we’ve had to pay part of the cost for that procedure twice–once when my 50-year old husband thought he might be having a heart attack and another time when my 12 year old son had severe abdominal pain and the doctors thought it might be appendicitis. How can these tests, used every day, cost so much? How can this system continue? It can’t, and it won’t, without reform.
Literally, only in America do people go bankrupt over medical costs. Only in America. I can hardly believe it…I’ll jump off my soapbox now. Thanks for bringing up this topic.
My mom incurred huge medical expenses during her 13-month ordeal to recover from a giant aneurysm and stroke. Unfortunately, it ultimately took her life. She was fortunate to have excellent health insurance through her employer, which covered a large percentage of the expenses. Of course, we were still left with bills for deductibles, co-insurance, etc.
Not to turn this into a political post, but I would like to see some reforms in the health care industry. But not “government-run healthcare.” That goes beyond reforming an industry, and inserts the government into even more aspects of our lives.
I think industry changes are needed on three fronts:
Eligibility despite pre-existing conditions (as Dan references above). Insurance should be available to those with pre-existing conditions. I understand premiums may be higher because of increased risks/costs associated with a particular condition. However, to not offer coverage at all leaves people with zero options.
Increased competition amongst insurers (remove state residency requirements). Why is it we can buy a 529 College Savings Plan sponsored by any state in the country, but must be residents of a partiuclar state to be eligible for a particular health care plan.
Medical malpractice reform. Much of the costs of practicing medicine is protecting yourself from lawsuits. There are instances where negligence or legitimate malpractice results in injury or death, but like many forms of lawsuit, this is over-used. The costs of malpractice insurance are passed along to patients and insurance companies.
This is absolutely SO TRUE! I was watching an interesting series on TV last year, which interviewed 4 people. All were living in poverty, but all lived normal lives before. Common factor? Medical problems. It behooves all of us to make sure we have enough medical coverage, TODAY!
FrugalDad, btw, my guest post finally came up on Wise Bread. I have been meaning to send it to you ever since you told us about your mom. While I was writing it, our thoughts overlapped. I want to dedicate part of the post to you and your mom for inspiring us with all your good writing. It’s entitled “Knowing When To Walk Away”. I hope you enjoy it.
I agree 100%. Just having gone through having a baby without insurance, I know the costs of medical, even non-emergency, planned, medical care is a huge burden. We are still paying some of the costs and I know that emergency things cost even more and are obviously harder to plan for.
One of the things that really increases the costs of medical care is the fact that we’re legally mandated to subsidize the medical care of people who are injured while committing crimes.
My ex used to be an emergency room nurse, and she’d tell me about drunk driving accidents. Most of the time the victims would be doing everything “right”: they’d be ordinary people on their way to work or to pick up a child from school. They’d have insurance, but their injuries were so severe their costs of treatment would be far above their coverage limit.
When you’ve got several surgeries and a month in the hospital, followed by several months out of work and rehabilitative care to learn to walk again, the entire family is wiped out. Nobody carries that much insurance. The family in question generally loses its home and ends up in bankruptcy.
But the absolute worst, sickest part is what happens to the drunk who caused the wreck. More often than not, it’s a repeat drunk driving offender who’s unlicensed, uninsured or underinsured, and flat broke. There’s nobody to bill for the damage they do. Sometimes they aren’t the ones injured in the wreck, but when they are, they often end up in the same emergency room as the person whose life they’ve just destroyed.
Medical ethics kept my ex from administering a bit of vigilante justice in the waiting room. She’s a better human being than me. I’d have given in to temptation, especially given how the irresonsible drunk’s medical expenses were going to be paid for. There were two options:
Option 1) The costs are absorbed by the hospital, which writes off the bill so that the entitled member of the social elite has to pay nothing (despite completely destroying another family). The costs are either gouged out of other expenses such as staff pay or shareholder dividends, or it’s passed on to other paying customers and their insurers, thereby creating an even heavier load on the responsible people who are trying to play by the rules. OR…
Option 2) If the entitled person happens to be on disability or Social Security, all his or her medical bills are covered by the taxpayer, along with the bill for the lawyer hired at public expense to get him or her off the hook for any criminal charges resulting from the “accident”.
Although there are plenty of people on disability or Social Security who are honest, decent human beings, and while the vast majority of people are not abusing their special status, there are enough who do to jeopardize everyone else’s faith in entitlement programs.
The worst part of it all — some people pay nothing while other’s end up paying thousands. A few of my friends and I had babies around the same time, cost for everything was around $25,000 on average. My friend’s had TO PAY NOTHING and I ended up paying $2000. My baby is priceless, but it doesn’t seem fair I had to pay so much more when we all have insurance. I can’t imagine what the bill are like for someone with a chronic condition… so unfair.
Long term coverage is key, as well as long term disability. Don’t skimp out on saving $50-$100 bucks a month just in case disaster strikes.
I recommend everybody spend a good 30min-1hr reading their health benefits book, and speaking with a specialist.
Once you actually start liking yourself then you start to only put good things inside of your stomach. From this only great health can come!
I see many people filling their rumbling stomachs with the quickest, easiest, fattiest solution possible and wonder why they get sick?
If I am unable to eat properly then the Socialist NHS will look after me
I describe it as a “leaky bucket” but at least it leaks over its people and kinda insulates them from the majority of medical expenses.
Are you stating NOT to put large medical expenses on the credit card (if available) but to work out a plan for with the provider for monthly payments? Is that the best way to handle it in the long run??? They so PUSH you to put it on the card….
Just wondering what the differences are in this in the long run… as debt is debt. Didn’t realize that the card would cause other problems also.
Can someone expand on this?
This is one of the reasons we are working so hard to get out of debt! We want to help as many people as we can and the only way we can do that is to dig ourselves out of the hole… Very sad…
@marci357 Honestly, I would go through the medical provide as in most cases they will be more lenient on payment amounts as well as many don’t change any interest whatsoever.
Many also don’t report to a credit agency as quickly as a credit card or loan would.
On one of my medical bills, I called and they said there will be no interest, and the payment due is whatever I can pay that month and each month after so I paid about $10 for a few months.
Thanks
At some point in time, I’m sure this will be become an issue for most of us – and it’s something I seriously had not thought about… the credit card versus provider part of it I mean.
No problem, we have had the..pleasure of going through all that trouble so for our hospital and their accounting company, I know a little about how they do things.
If a person trys to pay a hospital bill without insurance they will go broke anyway, so they might as well not pay it at all.
Tort reform and procedure review might got a long ways toward reducing everyone’s financial burden when it comes to medical expenses. Also, we need to eat healthier and exercise more–of course. Lowering the boom on the insurance companies too.
What most people don’t realize is that the insurance companies do not pay as much as the hospital or provider is charging you–the fees are “discounted” to insurers.
It is very possible (hard work but possible) to negotiate with a hospital and receive a big discount yourself, often as much as 25-35%. You’ll do best if you can find out what insurers are actually paying–Medicare bills, for example, will tell you and you probably can find out the rates for big private insurers by asking friends to share their bills.
Then go into the finance department fully armed with all the information you can get and negotiate hard. I know a few people who have been willing to do this and have saved themselves lots of money. You’ll need to keep asking for the supervisor–it takes a pretty senior person to make the concession.
You might politely threaten to go to the local paper with your heartrending story.
And as far as doctors’ bills go, don’t be afraid to ask there too.
Do NOT put the bill on a credit card–your negotiating strength comes from the fact that you still owe–and they would rather collect a % of what you owe rather than nothing. You should not have to pay full rates–and then pay absurd interest on top of that.
I am retired but in the past I both practiced medicine and ran a hospital so I’ve been there.
Medical costs can be horrible, but please take theses studies with a grain of salt. As you wisely mentioned, many of these costs are indirect caregiving costs, not bills for services and equipment. [Dr. Helen has great ideas above.
And what these studies, esp the harvard study FAILED to look at was the financial health of these families BEFORE the illness. In fact, the majority were in more house than they could really afford, with car and credit car debt ALREADY. Most were lacking in any emergency fund and almost NO-ONE who was a primary breadwinner had disability insurance to cover their own illness.
So, can an out of the blue unpreventable illness or injury wipe you out financially? Sadly, yes.
Is this likely if you manage your funds appropriately all along, have needed insurances (some noted in the study didn’t have health insurance because it was “too expensive” or they didn’t think they needed it!) and take care of your body? Not nearly as big a chance.
PS..Nancy..your hospital is prohibited by FEDRAL law from talking to insured patients!
Mr. X,
Your post is mind-numbingly insensitive. What about people who are born with medical problems?
Hit by drunk drivers? Accidents in general?
Your comments display shocking ignorance and are incredibly small-minded. May you never experience a medical emergency. You don’t appear to be equipped to handle it an any level.
was waiting for such a reply.
Diane,
the gene pool has no life guard. if life here on earth was perfect then there would be no genetic disorders or even death. life is impermanent so while you appear to have your compassion emotions fully enabled you could be missing the big picture.
nobody makes it out alive
the majority will go through death-pain, except people who die in their sleep. that’s gotta be the best way to go.
I have to admit I cringed when I saw the title of this post. I thought it would talk and ‘bash’ (for lack of a better word) about responsibility.
I am filing BK for medical expenses AND a lengthy custody battle. It really is a demeaning feeling to be filing.
I’m glad this post shed some understanding and compassion.
Sometimes life experiences can change our minds about these things and give a compassion about them we once never had. I know it did for me. I used to have really great health insurance and never knew anyone personally that didn’t. Working and living in MI my whole life and being accustomed to those with the previously wonderful insurance that the automotive industry provided along with companies that had to compete with the industry for its employees to keep employees happy. I never worked for the former Big 3 but I did work for comapanies that supplied to them my entire life.
What a change these last few years have had on the lives of myself, my family, and my close friends.
Mr. X has a good point, albeit very frank and oversimplified.
There are numerous avenues that patients may take to defray costs associated with expensive medical procedures. Further legislation regarding health care reform will only complicate the issue. Furthermore, no one is more capable than the individual (or patient guardian) of personal health management. A doctor, private or socialized, will not genuinely advocate on behalf of any patient. Physicians and other health care experts are technical advisers, strict practitioners, and basically far too overtasked to determine a definite course of action without patient input.
Finally, as a taxpayer, I would rebuke those who propose swift changes to the national health care scheme. My money is mine alone, and should be allotted to those under my own auspices. Given the opportunity, I would also phase out the systems of Medicare and Social Security.
wow, another reason that i thank god that i am canadian. for me and all of the other people who live in the first world outside of the united states, this is not a reality that i will ever have to face. it is hard for me to imagine a life were if i were ill i would have to choose whether or not to see a doctor based on my finances. i believe that in canada and in europe, basic health care is seen as a right and not a priveledge, therefore it is the responsibility of the government to provide this service.
Patti, How is the hospital prohibited from talking to me when they send me a bill with a phone number on it?
I can just see how easy it could be for someone to go bankrupt from medical bills.
Just had some minor surgery and as I am paying off debt I am so thankful for free health care – the NHS may not be perfect but it is free.
[Of cause I do pay for it via my taxes but you know what I mean]
Wow! pretty impressive considering the tone of the healthcare debate of recent, no yelling, no personal responsibility bashing, just alot of thoughtful comments!
While this is not a subject to be laughed at, I have to laugh. My father tells me the story of when I was born all the time and that I cost him over $20,000 in the late 70’s. He had insurance, but it didn’t cover premature me. He tells me how he went into the hospital and told them “F—- You I am only going to pay you $10 a month, that is all I can afford”. He says the hospital didn’t like that so he told them “F— you”! LOL, I wish it was that easy today. He finally paid my bill off when I was around 14 or so. I still thank him every birthday.
What is really unfortunate is when people fall for the discount health card scams and think that they have true health insurance but then when they have a large medical bill then they find out that their “health insurance” is really just a discount card. Sticking with a large and trusted provider like United Healthcare, Aetna, Blue Cross, etc. really is the way to go.
Last year I decided to keep close track on our co-pays and monthly billings. We were covered with an incredible package with a low co-pay.
At the end of the year, we spent about $13,000 on health insurance through a very generous employer. That includes the medication, the premium we paid (which was less than 1/3 of our current COBRA payments). The point? Even if you have excellent coverage, and it’s subsidized by an employer, it’s still going to cost a bundle to stay covered.
Personal Experience: I’m a 100 % self supporting single mom, middle class, who had 2 major medical events in the past 5 years; a child’s temporary disability and myself breast cancer. I had insurance but because of the uncovered cost PLUS living expenses not covered by disability – I suffered. I sold my home before I completely lost it, used up the equity to pay above costs. Now I’m 48 years old and looking at how to recover my nest egg. I didn’t go bankrupt but our standard of living is gone and we pray we do not have another event. Please do not be critical of hard working people who have lost everything due to medical expenses. I would be willing to go on the “Canada” plan. Thanks!