With many households carrying more personal debt than ever, unexpected expenses can cause a huge strain on resources. That is especially true when it comes to medical emergencies due to the cost of medical care, which often seems unreasonably high. Americans that are living paycheck to paycheck with little saved to pull them through a rough patch are a heart attack, stroke or cancer diagnosis away from medical bankruptcy.
Illnesses don’t discriminate and at times crop up at the most inopportune times. Although it is encouraging that more people are surviving critical illnesses, the bills that mount up during recovery put a long-term financial strain on families and often times lead to medical bankruptcies.
Facts About Medical Bankruptcies
Because filers are not required to state a reason for the bankruptcy, researchers disagree on the percentage of bankruptcies specifically attributed to medical debt. However, with the range being anywhere from 643,000 to 2 million people, it is still safe to say that the number is too high. According to CNBC, “only 40 percent of Americans have enough saved to cover a $1,000 emergency expense.” Medical emergencies can reach and easily exceed $1,000 very quickly, especially if a hospital stay is involved, so it isn’t hard to see why a bankruptcy might necessarily follow. It’s interesting and a bit scary to note that even those with health insurance are at risk of bankruptcy because often they aren’t prepared for the amount of uncovered medical expenses they will incur in the form of deductibles, co-insurance, denied claims, etc. So the question is, how can you protect yourself from a medical bankruptcy?
Does Mortgage Protection Reduce Medical Bankruptcies?
The facts show that mortgage protection would only benefit three percent of families with a sick head of household (sadly, in the case that the person dies from the illness and their home is paid off). Unless your mortgage protection also provides for payments in case of disability, usually only for a limited time, it will not be a source of relief during a major illness. Even in that case, though, it will help pay your mortgage but it won’t cover living expenses. Keeping up with college tuition, car payments, utility bills, food for the family, etc. can become an immense struggle when their is loss of income due to illness, leading some to lose their health benefits because they are too sick to work and lose their job or cannot pay their premiums any more. Losing the ability to earn an income and not having an emergency fund to fall back on is a major contributor to medical bankruptcies.
These facts are indeed sobering but take heart! It is possible to avoid medical bankruptcies as well as minimize or even eliminate the financial strain of a medical emergency.
How To Prepare For the Unexpected:
- Build an emergency fund that can cover anticipated expenses—mortgage, food, insurance premiums and out-of-pocket expenses.
- Have a better balance on health insurance between coverage and cost. Having the ‘best’ plan may become unaffordable, yet having the highest deductible plan may be too much to handle at claim time.
- Be aware that even with high deductible health plans, you can make zero-interest payments to the providers if you do not have the cash to pay the full deductible up front.
- Understand how your health insurance policy really works and stay within the provider network.
- Don’t plan to use your retirement portfolio to finance such a burden. It could end up costing you more in penalties and capital gains than you realize.
- Disability insurance policies are a great investment in protecting your income should a medical emergency arise.
- Cash value life insurance or life insurance policies with ‘living benefits’ will help with financing your medical and household expenses while you are recovering.
Advance planning always pays off and avoiding medical bankruptcies is no exception. The statistics are hard to swallow because medical bankruptcy is not a place where anyone wants to be. The good news is, there are ways to help avoid it.