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.”

In need of health insurance? Get a free quote at eHealthInsurance.com.

Post by Frugal Dad

In the scheme of healthcare costs, prescription drugs are generally considered one of the “good” expenses in healthcare.  It is cheaper to treat your high blood pressure than be affected by the consequences of it, for example.  Still, within the vast realm of prescription drugs, there are many variations of choices as well as costs.  Based on reader questions and forum posts at www.healthharbor.com, we’ve compiled a list of three questions that have been asked often as of late.  Below are the questions, along with some thoughts around each issue.

1)  How much do I save by using generics instead of brand name drugs? It varies greatly, and it shouldn’t be a financial decision alone.  Some patients find that they respond differently to a generic than a brand name drug, although it could be the placebo effect at work.  In general you’ll likely save at least 50% on generic drugs, and it isn’t rare to see savings of up to 80%, so it is definitely worth considering anytime it is an option.  In addition, a consumer-friendly trend has emerged in the past couple years – the deep discounting of certain generics by major pharmacy chains to as little as $4 per month – which may make the savings even greater.  The useful interactive Discount Generic Drug Radar at http://www.healthharbor.com/DiscountDrugRadar.php can help point you in the direction of the nearest discount generics in your area.

2)  If I have a prescription for a brand name drug, can my pharmacist prescribe me the generic equivalent instead? No.  Only if your doctor, on the prescription, wrote something to the effect of “Generic OK” can a generic be substituted for the brand name.  A pharmacist has to be very literal when they fill the prescription.   That is why it is so important that you have the discussion about generic alternatives when you are talking directly with your doctor.

3)  Can my doctor make me come in for an office visit just to get a new prescription of a recurring medicine I take? Yes.  Doctor’s have a responsibility to make sure your prescription is still the right one for your condition, given changes in your health, other drug interactions, or other factors.  If you have a prescription that enables you to get three refills, you should be able to get your three refills without another visit.  However, when that prescription is done and you need another month’s supply, the doctor has every right (and a responsibility, actually) to see you to make sure the prescription is still calibrated to your situation.

This guest column is from Paul at www.healthharbor.com.  HealthHarbor is a site devoted to helping people be smarter consumers of healthcare.  It provides ideas and guidance on saving money on healthcare, interactive tools for controlling healthcare costs, and hosts an online community devoted to healthcare spending topics.

Post by Frugal Dad

As healthcare expenses become a larger and larger component of a typical family budget, people are continuously looking for ways to keep them in check.  Like any other component of your budget, the financial habits you keep can make a big difference on how large your annual healthcare tab is.  While there are dozens of things that can shave costs off of a healthcare tab and medical bills, here are four habits that any family can incorporate and, if done consistently, can easily add up to hundreds of dollars of annual savings, or more.

Habit #1: Inventory Your Coverage. Doing a thorough analysis of your health coverage on an annual basis is a habit that can save you and your family significant money in the long run.  It can be tempting to rush through your health coverage forms whenever your open enrollment period rolls around, simply carrying forward your prior year choices, or estimating your coverage needs with little research.  Instead of rushing through this process, sit down with your Explanation of Benefits (EOB) forms from your year’s worth of healthcare expenditures.  Understand where there may be gaps in your coverage and how you can adjust your insurance to maximize it.  Are you getting significant out-of-pocket costs due to a recurring non-covered procedure that a child requires, such as a therapy?  Is your family a heavier user of preventative care than you may have assumed, leaving you with the expense for care above and beyond your plan’s baseline?  If you work for an employer who offers multiple insurance options, you may find that you’ve been selecting a plan that is either too limiting or too complex for your family’s needs, and should explore an option that you assumed was not for you.  In other cases, you may find that shifting entirely to a spouse’s insurance is the smartest move for your family.  See HealthHarbor’s special article on When it May Make Sense to Drop Your Employer’s Coverage for more ideas.  The point here is not that people don’t understand this stuff – intellectually, they do.  The point is that they often don’t take the time during open enrollment to really review their situation.

While you’re at it, ensure that options such as Dental and Vision coverage make sense for you.  Vision insurance covers a very limited scope of services – usually routine check-ups and part of the cost of glasses or lenses.  Eye injuries or infections, for example, are usually covered by your medical policy.  Ensure your particular Vision or Dental plan actually has the potential to cover its premium cost for your family.  You may be better off simply saving in your Flexible Spending Account (FSA) for those expenses.

Habit #2: Match the level of care with the illness. You’ve probably heard the term “don’t kill a fly with a sledgehammer”, and that saying sums up part of what is wrong with our healthcare system.  Many people seek the wrong level of care for their ailments, and it ends up costing them and the health system money.  When my first child used to have earaches, we would take him to his doctor.  We knew he had an earache, and we knew that he may need either antibiotics or eardrops, but the doctor was the gatekeeper for those meds.  The typical visit cost about $100, and that cost doubled if we went to Urgent Care.

With our second child, we’ve wised up. When she has an earache, we immediately seek out our nearest Physician Assistant-staffed walk-in clinic, such as MinuteClinic.  We still have someone look in her ear, and we still end up with the same antibiotic or eardrop, but the cost is $59.  Anyone who has kids knows that these seemingly small costs add up, and finding the walk-in clinics near you, whether they are operated by a chain, a local health system, or a big box retailer can save alot of dollars over the course of a year.

One tip – make sure these walk-in providers aren’t considered “out-of-network” by your insurer.  While it defies logic, some plans would stick you with an entire $59 walk-in clinic bill while your charge for going to a much more expensive but in-network urgent care would simply be a $10 copay, even though it costs the insurer more.

Habit #3: Read your EOBs. This may seem obvious, but reading the EOB that you receive from your insurance company and comparing it with your medical bill is a habit everyone should have.  There are several points in the medical billing process when a key error can be one, and most of the time the errors do not work to the patient’s favor.  First, the provider may record the wrong insurance plan in the system, dooming the bill from the start.  Second, your clinic or doctor may enter the wrong procedure in their system.  You take your child in for one vaccination, and the procedure is incorrectly recorded as a shot to treat a disease.  It may cost more, and in some cases can turn that charge into one that is “non-covered” by the insurer.  Third, the insurer may interpret the charge incorrectly, and pay the wrong rate or deny the charge altogether, sticking you with the bill.  This could occur because the charge was billed incorrectly or they processed the charge using the wrong plan.  Fourth, mathematical errors happen which should be apparent when you review your EOB.

While there are more than four instances when EOBs can clue you in to a costly error, these are some of the more common ones to watch for.  If you do find an error, begin by calling your insurer.  If that doesn’t get you anywhere, see if your doctor’s office can help.  If you hit a dead end, ask if your employer’s benefits department, the actual buyer of the insurance plan, can step in.

Habit #4: Know the finer points of your FSA. Anyone who reads a personal finance blog is probably well aware of the ability to save for medical expenses with pre-tax dollars.  While most people use their FSA to cover premiums, deductibles, and perhaps copays and medications, there are a few items (some surprising) that many families overlook when considering what they can cover with pre-tax dollars.  Here are a few:

• Day Camp: As part of dependent care expenses, you may pay for day camp through your FSA if it allows the parent to work

• “Small” Consumer Health Expenses: Your FSA can cover many items that may end up on your grocery list, including Tylenol, Advil, Tums, Neosporin, Pepto-Bismol, cough syrup, sunscreen, and hand sanitizer

• Home Improvements: The cost of removing lead paint in order to prevent potential a child from ingesting it can be reimbursed (but not the painting), as can radon gas abatement if directed by a physician

• Massage, Acupuncture, or a Personal Trainer: If prescribed by a physician for a medical condition, these items may be covered

It is worth mentioning here that FSA dollars have the “use-it-or-lose-it” clause (unlike Health Savings Account dollars).  While you may find there are more expenses than you realized for which your family can use FSA dollars, always be a bit conservative when allocating your yearly FSA amounts.

Post by Frugal Dad

Photo by bredgur

Based on what our dentist advised, this is no longer an option. Obviously, the news doesn’t help my efforts to get out of debt and build a healthy emergency fund. Over the last day or two I’ve had time to digest the news and devise a plan of attack and cover the cost of braces for our daughter.

The best way to eat an elephant is one bite at a time. At least that’s what all the personal productivity gurus tell us, right? The idea does have some merit, particularly in the area of personal finance. For instance, in the days immediately following the last-minute Christmas shopping hangover my wife and I agreed next year we would plan for Christmas expenditures instead of trying to cash flow them out of each paycheck from October to Christmas Eve.

We opened an online savings account and committed $25 a paycheck (biweekly) be diverted to that dedicated “Christmas Club” account. We plan to take the same approach to braces, only the dollar amounts will be significantly higher and I’ll have to come up with a more foreboding name than “Club” to attach to the ledger identification. This was the option we settled on, but there other strategies we strongly considered.

Covering the Cost for Braces

Our first thought was to fund the cost of braces using our flexible spending account at my employer. This might still be an option, but I had three reservations. First, I would need to investigate the IRS regulations to determine if orthodontics were covered as an FSA-eligible expenditure.

Second, our FSA is tied to a debit card and all charges must be run through that system. I planned to do some negotiating with the orthodontist using cold hard cash. Thirty Benjamin Franklins laying across the table look a lot better than a Mastercard debit card when trying to broker a discount.

Finally, agreeing to have $150 deducted from each of my twenty-six paychecks would cause a significant hit to the monthly budget. Of course, one could make the argument that I’ll have to set up the deductions to some sort of savings vehicle anyway, so why not get the tax deduction associated with creating a pre-tax flexible spending account. Good point.

We could finance the cost for orthodontics directly from the orthodontist. This discussion didn’t get very far because my wife and I are committed to taking on no new debts, even for braces. Putting the braces on a credit card, taking out a loan, or using the orthodontists in-house financing just did not appeal to us.

In the end it appears saving biweekly amounts in our online savings account fits best with our current financial strategies (keep it simple, no new debt!). Like other decisions we’ve made with finances, it may not make the most sense mathematically, but it makes the most sense personally. That’s why they call it personal finance.

2010 Update: We wound up going with the in-house financing through our orthodontist because it was interest free, and our dental insurance covered the first $1,000 cost of her braces. That left us with about $3,000 out of pocket, which we’ll pay interest-free over time.

Post by Frugal Dad