Health care related bankruptcy is on the rise, study says

Americans are increasingly at risk of financial ruin due to illness and medical expenses, according to a new study released yesterday by the American Journal of Medicine. The researchers found that illness or medical bills contributed to nearly two thirds, or 62 percent, of all bankruptcies in 2007—before the major impact of the housing collapse and current economic downturn. That’s a 50 percent increase over a similar survey in 2001 by the same researchers.

Most of the debtors are middle aged, middle class and have a college level education, and each of them has their own story. Take Donna, from Chicago (right) who told us her bankruptcy story during our Cover America Tour. Donna’s husband had already been diagnosed with a heart condition, and when she found out she had uterine cancer, their out-of-pocket costs shot up to $9,000 a year. When they fell behind on their bills, one of her doctors sued to garnish her wages, which forced her and her husband into bankruptcy. They ended up losing their house, she gave up her job at a newspaper, and they moved into their daughter’s basement until they could afford a small apartment.

As in this case, unaffordable bills directly contributed to 92 percent of medical bankruptcies, and loss of income due to illness caused 40 percent. Many people lose their heath insurance after suffering an illness or injury. A quarter of businesses that offer health insurance cancel coverage immediately when an employee suffers a disabling illness, and 25 percent more cancel coverage within a year, according to the study.

Just over three-quarters of people who suffered a bankruptcy due to illness were insured at the onset of their health issue. But the total out-of-pocket medical costs for those who had insurance when they became ill was a steep $17,749, on average. For those who didn’t have insurance, the average debt was $26,971.

These figures underscore the need for improving our health insurance system. In a recent poll, we found that 60 percent of Americans are concerned about the possibility of bankruptcy because of a medical concern. At the moment, the best defense against medical debt is to know your coverage, and try to negotiate your bills if they are too high. (And check for billing errors.) Also, be aware that lenders have begun pushing risky credit plans for medical care. Try not to pay medical bills on your credit card—it can weaken your negotiating power with the provider, while potentially racking up tremendous interest and fees.

—Kevin McCarthy, associate editor

Comments

[elisabeth]

I do look forward to a time when the US has health insurance for everyone. But in the meantime, I was surprised to see that a bill for $9000.00 -- or even $17,000 -- is enough to put one into bankruptcy. I can't help but think that if people did not consistently live "up" to their income, and instead saved money every month, an emergency like a severe illness would be something they could handle without bankruptcy...
Similarly, if one is without resources or worried about costs, one needs to be clear about that immediately and work with doctors and hospitals on alternatives. When I was a graduate student I was unable to pay for some needed treatment, and the doctors at my university hospital were very creative in figuring out ways to help, along with several years of my paying small amounts each month on my account.