Health Care Costs Are the No. 1 Cause of Bankruptcy

How Medical Bills Devastate America's Families

healthcare costs lead to bankruptcies
Emergencies lead to bankruptcies, even for those with health insurance. Photo: Sam Edwards/Getty Images

In total, 56 million people struggle to pay health care related costs each year. That's more than one out of four people who were in families that were burdened by medical bills. Most of these were paying the bills as they could, over time. But 16.5 percent were in families that had problems paying those bills in the past year. Another 8.9 percent just couldn’t pay them at all.

To pay the bills, 15 million used up their life savings.

Ten million skimped on groceries or defaulted on rent to pay medical bills. Twenty-five million cut back on taking their prescription medications. That leads to further health problems down the road. 

Rising health care costs force 11 million people to rack up high-interest credit card debt to pay for health care. As a result, medical costs cause 62 percent of the two million personal bankruptcies declared each year. That is more than those going bankrupt for unpaid credit card debt or mortgage defaults. 

These families were not the poor, who are usually well-covered by Medicaid. Instead, two-thirds were homeowners and three-fifths were college graduates. They were middle-class Americans who got hit with massive, and unexpected, out-of-pocket medical expenses. Those with private insurance saw an average of $17,749 per family. Those who lost insurance during the process faced $22,658 in bills.

Those without insurance obviously were hit with the most, at $26,971 per family.

A frightening 90 percent of those who had homes had to take out a second mortgage. Nearly 30 percent maxed out their credit cards, while 8 percent were forced into bankruptcy because the illness cost them their jobs.

Even more disturbing was that 78 percent of them had  health insurance that failed to cover all their bills.

Most of them (60 percent) were let down by private insurance, not Medicare or Medicaid. Ten million of them will incur medical costs they can't pay off each year, thanks to high-deductible plans.  (Source: "Medical Bills Biggest Cause of Bankruptcy," CNBC, June 19, 2013.)

​How did those with insurance wind up with so many bills? After high deductibles, co-insurance payments, and annual/lifetime limits, the insurance ran out. Other companies denied claims or just canceled the insurance.

The most expensive diseases were diabetes, at $26,971 per family, and neurological disorders like multiple sclerosis, which cost $34,167 on average. The biggest expense was hospitalization, which caused half of the bankruptcies. (Source: “The Impact of Chronic Diseases on Health Care,” For a Healthier America, 2014. “U.S. Health Care Spending: Who Pays?” California Health Care Foundation, July 2014.)

How It Affects You

This study points out why it's important for you to look at health insurance like any other form of insurance. It's there to protect your financial assets. Therefore, look carefully at the deductibles, co-payments and out-of-pocket costs in addition to your monthly premium payments. Compare your existing plan, if you have one, to what you could otherwise get on the health care exchanges.

If you don't have insurance, be sure to do the same when shopping for new insurance.

If you can easily afford a $5,000 or $10,000 deductible, then it makes sense to go for a lower premium payment. If that high deductible level will wipe you out, then paying more each month is worth it -- even though it takes a bigger bite out of your cash flow.

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