Last Updated: June 15, 2009
It may be hard to plan for risks you may face in life. However, one risk that you should definitely try to manage, through insurance and other means, is the risk of bankruptcy due to illness and medical bills. It's both large and increasing.
Medical bills are involved in 62.1 percent of U.S. personal bankruptcies, an increase of 50 percent in just six years, according to a new study. And more than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, according to the study, which appeared in the American Journal of Medicine. In addition, the study noted that most medical debtors were well educated, owned homes, and had middle-class occupations. Learn more about the study.
Given these statistics, what can you do to reduce the risk of bankruptcy due to medical bills?
According to financial planners, there are at least two types of health insurance policies to consider adding to your financial plan. Those include something referred to as dread-disease insurance and catastrophic health insurance.
Dread Disease Insurance
"This is always a hard topic to discuss, as it seems to effect so many people across so many different socio-economic classes, and with so many different disease combinations, called co-morbidities," said FPA member, Chris Cooper, CFP®, president of Chris Cooper & Company, Inc. "Cancer is the leading single cause, as a disease group, however birth defects, premature births, multiple births, developmental disabilities of all kinds, accidents, and so on can be causes of catastrophic health care needs.
"Dread disease policies, such as ones that pay for just cancer, or intensive care, can be helpful, as they can provide additional dollars for these specific situations." However, Cooper said, "dread-disease policies are limited in scope, and limited in amounts paid, similar to principal sum policies, such as accidental death and dismemberment policies. Such plans are popular as a payroll deduction plan at work, especially in small companies with little or no benefits, and are sometimes mistaken for major medical insurance coverage, which they are not."
Catastrophic Health Insurance
FPA member, Jeffrey Massey, CFP®, of Massey and Associates, suggests that you consider what's called a secondary or catastrophic health insurance policy. Such policies can help you if you exhaust the coverage of your primary health insurance plan. "A catastrophic health plan — also called catastrophic health insurance, major medical plan or catastrophic health coverage — is a form of insurance coverage that keeps deductibles very high, meaning premiums may be lower and therefore, more affordable," according to About.com.
No Time to Plan?
If you're already in the thick of it, Massey has this advice: "Individuals can always negotiate with hospitals and/or doctors. They can negotiate relating to the actual charges or certainly a payment plan over a period of years." Or, you are likely to get a good-sized discount if you can pay for it all at once. It might be possible to tap the equity in your home or retirement accounts to pay for some of your medical bills.
Cooper agreed, saying that families who are faced with large medical bills need to be in contact with their hospitals, as most have charitable funds available for those who cannot pay, as well as financial consultants who help to determine ability to pay, insurance coverage, and other possible discounts and funds that can cover care. "Unlike Medicaid that pays for care in a nursing home for an older adult, there are no spousal impoverishment protections for hospital, medical and surgical care," Cooper said. "Thus, bankruptcy protection is the only solution, and you need to have an attorney on retainer when you know this is the situation."
In addition, Cooper noted that it is not uncommon anymore for groups to be having "spaghetti dinners" and the like to raise money for a child or a young adult who needs surgery for a life-shortening condition, which insurance did not fully cover, or in the case of experimental care or surgery, which has not been fully approved in the U.S. medical community.