The state of medical bankruptcies in the United States
Over 2 million people will be affected by medical bankruptcies this year alone in the United States. Three out of five individuals who file for bankruptcy have unpaid medical expenses. Although the misconception is that most bankruptcies in America are due to unpaid credit-card debt or mortgages, the root of the cause is directly linked to the financial burden that often comes with illness.
This alarming claim from a study published in 2013 by NerdWallet Health which states that unpaid medical bills is the number one reason for bankruptcy in the US. Shockingly, medical bankruptcies are even cited as the main reason before credit card debt and mortgage debt.
1.7 million Americans who live in households that will declare bankruptcy due to their inability to pay their medical bills.- NerdWallet Health
These findings collated from the U.S. Census, Centers for Disease Control, the federal court system and the Commonwealth Fund, demonstrate an extreme number of families that are unable to receive proper medical treatment and care due to financial restrains.
In the release of the study, Christina LaMontagne who is NerdWallet Health Vice President, stated that an average American household or family would generally earn $50,000 of income. Coupled with general living expenses, families who are forced to pay out of pocket for medical treatment of $5000 to $10,000 can find it really tough.
The study also revealed that 20 percent or 56 million adults in the US who have not filed medical bankruptcy are in a significant amount of medical debt.
Although this recent study has demonstrated that a lot of Americans are struggling to pay for their medical expenses, medical bankruptcies have always been one of the major reasons for bankruptcies in the United States for the last several years.
A clinical research Harvard study back in 2007 published in the American Journal of Medicine examined 2314 bankruptcy filers and concluded that illness and medical expenses are one of the largest contributors for US bankruptcies.
The study found that 62.1% of all bankruptcies in 2007 were due to medical related causes, where 92% of bankruptcies filed were from individuals who have accumulated over $5000 of medical debt.
Another major contributor to medical bankruptcies was the loss of the main source of income or loss of savings in order to pay for medical expenses when a family member falls ill. The study found that families who experienced greater loss of salary found it difficult to overcome the never-ending medical debt that had been accumulating. It was also found that a leading cause for filing medical bankruptcy was due to being unable to pay for the mortgage.
Who files for medical bankruptcy?
Of the 1.7 million Americans living in households filing for medical bankruptcy, majority of these individuals were from California (248,002), Illinois (113,524), and Florida (99,780). These three states alone, accounted for over one-quarter of individuals who filed for medical bankruptcy
Although individuals who come from low socioeconomic backgrounds are at most risk of filing for medical bankruptcy, Harvard 2007 believed that “most medical debtors were well educated, owned homes, and had middle-class occupations.”
In fact, a large number of Americans filing for medical bankruptcy had all-year round health insurance coverage. This accounted for 10 million individuals between the age of 19 and 64.
The high-deductible insurance plans which require Americans to bare the out of pocket costs, became one of the fundamental challenges for the 10 million Americans who claimed they had health insurance but were still unable to pay for their medical expenses.
The impact of medical bankruptcies on the patient
Filing for medical bankruptcy can have major impacts on the patient in need of medical assistance. One of the most devastating results from medical bankruptcies is the patient’s inability to access medical care when needed.
Over 25 million adults who are struggling to pay for medical expenses have opted to forgo prescription drugs in order to control and limit the medical expenses incurred. Skipping doses, or taking smaller amounts than what was prescribed can have adverse affects on the health and well-being of the patient. It was also common to delay refills in light of the medical debt that had accumulated.
Although this can be a common solution for many patients on a day to day basis, it can cause worse financial strains to arise in the near future.
Unfortunately this can lead to even worse financial outcomes as preventative treatments are not rendered and patients end up using expensive ambulance and ER care as their health worsens.- NerdWallet 2013
It has also been found that 35 million American adults are constantly being contacted by collections agencies for unpaid medical bills. As a result, individuals can feel a greater sense of stress, which can lead to further complications in their mental stability and reducing their ability to cope with their illness.
The impact of medical bankruptcies on the family
Medical expenses can also impact the family immensely. When a family experiences medical debt and files for medical bankruptcy, this can cause major financial distress within the household.
According to the NerdWallet Health 2013 report, around 10 million Americans aged between 19-64 will be unable to pay for basic living expenses. These include necessities such as food and rent, some of the most basic needs for any household. Going without the basics can put a strain on the family. As a result, it can create further problems such as family breakdowns, depression and even ill health for other family members.
Another impact on the family is the overbearing debt that can be accumulated. 10 million families are put in a position to take further credit card debt in order to pay off their hospital bills. However, this can lead to lower credit rating and further debt which can be difficult to get out of.
Families are also impacted by medical bankruptcies through emotional distress. With the stress of the financial burden, families can experience arguments and mental breakdowns as a result.
Families can also be more at risk of divorce due to medical debt and filing for bankruptcy. A study in 2012 published in the Family Relations journal found that financial issues are one of the leading causes of divorce.
With 16 million children living in a household where a family is struggling to pay for medical expenses, children can be greatly impacted by medical bankruptcy. A recent 2014 study entitled ‘The Debt Trap: Exposing the impact of problem debt on children‘, examines the impacts on children when there is major debt within the household.
Children in these households will be twice as likely to be unhappy at school as they are being bullied and treated differently because they do not have the same things as other children.
Lack of focus in school, disengagement in activities, and loss of family structures are just a few long-term impacts that can limit the opportunities for children within these households.
3 Ways to prevent medical bankruptcies and lower your medical expenses
1) Negotiate your medical bill
|Advantages of negotiation||Disadvantages of negotiation|
|Easy Access: Negotiating at the hospital can be easy for individuals to access.||Upfront payments: Most negotiations will require individuals to pay the cost upfront in order to receive a 20-30% reduction of the overall medical bill.|
|Free from debt: Within 24 to 36 months after negotiation, you could be free from the debt||Accumulated interest: Often finalizing a negotiation can mean that you are paying interest through the period. This can add up to thousands of dollars.|
|Affordable Care Act: If you are negotiating in a non-profit hospital or medical center, there are programs that can assist in negotiating your medical bills.||Taxes on 'forgiven debt': By law, you are required to pay taxes on any debt that you have been exempted from as the exempted amount is considered additional income. For an individual who pays $5,000 to settle a $10,000 medical bill, you may be required to pay up to $2,000 in additional taxes.|
|Small Reductions: The outcome of the negotiation can mean a small reduction of the overall cost. This can still be overwhelming to recover from and still require the family to pay in advance before receiving treatment.|
|Paperwork: Often individuals looking to negotiate medical bills can find the task can be rather a lengthy process. Debt settlement can take 24 to 36 months.|
|Time-consuming: The best way to approach negotiating your medical bill is to be informed. Research and understanding the policies and regulations can take time.|
The idea of negotiating your medical bills can be a time-consuming and stressful. Many families who have received a large medical bill can find it very daunting to confront and will often avoid paying or dealing with their medical bills until it is too late.
However, according to Christina LaMontagne, vice president of NerdWallet Health, when negotiating medical bills, getting assistance from a medical bill professional can help lower cost down to $10,000, $20,000 or $30,000.
In order to begin the process of negotiating your medical bills, it is important to check the medical bill in it’s entirety. Make sure there aren’t any duplicate charges or mistakes on the medical bill, which can be easily fixed.
More often than not, hospitals will be able to assist in negotiating your medical bill if you are proactive and open about your financial situation.
Speaking to your financial counselor and social worker where you have been admitted for medical care is one of the first steps in negotiating your medical bills.
Depending on where you have received medical treatment, a hospital may fall under acts and laws that can help you negotiate your medical bill. For instance, under the Affordable Care Act, non-profit hospitals who are tax exempted are required to offer patient assistance programs to help patients that have medical debt. Within these programs, patients can find an outline detailing eligibility requirements for discounts and possible medical care savings.
Each hospital will have their own set criteria to be eligible to negotiate your medical bills. You should also be well-informed upon approaching your financial counselor of these eligibility requirements. Knowing the fair market price of the treatment or medication you receive can help you negotiate your medical bills.
By negotiating your medical bill, you can expect several outcomes and options depending on what has been discussed between you and the hospital. One option that is commonly given is a reduced rate in cash at the time of the treatment/procedure. This means, patients will receive a discount on the cost of treatment before receiving treatment. Another option could be setting up a payment plan so that you can receive the treatment and then make weekly or monthly repayments thereafter.
2) Seek financial aid
|Advantages seeking financial aid||Disadvantages seeking financial aid|
|Many Choices: There are many organizations that offer assistance.||Eligibility: Options for seeking financial aid can be limited to your age, pregnancy status, disability status, income, and assets. High income earners may find it difficult to seek assistance.|
|Disease Specific: There are disease specific organizations that can help with your medical condition, disease or disability.||Slow Processes: Applying for seeking financial aid can take time. Often patients and their families can run out of time particularly if they are in need of medical treatment.|
|Restrictions of use: Individuals will be restricted on what the financial assistance will cover. For example, individuals may not be able to use funds for food and rent.|
There are many options when seeking financial aid to help cover the cost of your medical bills and therefore avoid filing medical bankruptcy. There are three options when seeking financial aid:
Medicaid is a federal and state program that has been designed to help families and individuals unable to pay their medical debt. The main eligibility of this program run by the government is that the individual seeking financial assistance is a low-income earner. Individuals who have higher incomes are still encouraged to apply and seek financial assistance from this program.
It is important to know that each state will administer the program, although it is generally run by the federal government. This program aims to assist individuals in reducing the cost of future medical bills in order to assist families to be able to pay current medical bills that are due.
State children’s health insurance plan
Within each state, an insurance plan has been put in place to assist children from low income households. The insurance plan helps families afford health care for a child with an illness or disability.
Non-profit organizations and local groups
There are a range of local and state government assistance programs that offer help for individuals who are struggling to pay their medical bills. The best way to find out what your options are is to contact your local city or county for more information.
3) Medical fundraising
|Advantages of medical fundraising||Disadvantages of medical fundraising|
|Free: Individuals can setup and run a medical fundraiser completely for free at PeoplePledge||Asking for help: Individuals may find it difficult to openly ask for help from family and friends.|
|Fast: Families can setup a medical fundraising page instantly online and start receiving funds on the same day||Relies Heavily On Your Networks: Medical fundraising heavily relies on your own social contacts. Family, friends, work colleagues and even your local community are the main source of financial support.|
|Positive Support Network: Families can gain a positive source of support from friends and families who want to help but don’t know how|
|More Choice: Individuals have the ability to choose how the funds raised are used. Unlike financial assistance programs or negotiation of medical bills, individuals can determine the best use of the funds for the betterment of the patient without any restrictions.|
|Tax exempted: Given that donations are provided by family and friends as a gift, individuals will not be taxed on any funds raised.|
Medical fundraising or otherwise known as medical crowdfunding is the act of raising funds privately from family and friends. It is the fastest way for anyone in the United States to fundraise for a loved one with an illness or disability.
Individuals are able to setup a fundraiser online at no cost at PeoplePledge. The family then requires to take a proactive role in seeking funds from family, friends and extended networks. This can be done easily through social networking websites such as Facebook and Twitter. Sending emails, making calls and texting people you know can also help boost the amount of money you are able to raise to pay your medical expenses.
The fundraiser is setup for a certain amount of time, giving a sense of urgency for supporters to help immediately. The fundraiser will receive the funds in the assigned bank account during the course of the fundraiser to assist with paying for medical treatment and care.
Medical fundraising is beneficial as it allows the family to determine where and how the funds raised will be used. Unlike other forms of financial support, medical fundraising has no restrictions. As long as the funds are used to help the person in need with their medical care, the family has the end choice of how the funds are used.
1. Medical Bills Are the Biggest Cause of US Bankruptcies Study: http://www.cnbc.com/id/100840148#.
2. Medical Bankruptcy in the United States, 2007: Results of a National Study: http://www.pnhp.org/new_bankruptcy_study/Bankruptcy-2009.pdf
3. NerdWallet Health finds Medical Bankruptcy accounts for majority of personal bankruptcies: http://www.nerdwallet.com/blog/health/2014/03/26/medical-bankruptcy/
4. Examining the Relationship Between Financial Issues and Divorce: http://onlinelibrary.wiley.com/doi/10.1111/j.1741-3729.2012.00715.x/abstract
5. The Debt Trap: Exposing the impact of problem debt on children: http://www.childrenssociety.org.uk/what-we-do/resources-and-publications/publications-library/debt-trap
6. Seeking Financial Assistance For Your Medical Bills: http://www.nolo.com/legal-encyclopedia/managing-high-medical-bills-32221-2.html
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