Can Medical Debt Drive You Into Colossal Financial Ruin? In Short, Yes.

Updated: Aug 12



Examples of medical bankruptcy are increasingly spreading in the U.S., to a degree that is chilling and unsettling.


In 2019, the American Journal of Public Health found that just under 67% of all bankruptcies in America were the result of medical debt. And no, this isn’t isolated to those lacking in health insurance. In some cases, a debtor may have what is considered sufficient healthcare coverage. In fact, 90% of these bankruptcy claims derived from families or individuals with healthcare coverage. Rare, uncovered illnesses, of course, lead the charges that create bankruptcy, but even procedures or exams we take for granted can collapse a person’s financial security.


The Medical Bankruptcy Dilemma: Why Is It More Frequent Than Ever?


High deductible or uncovered services. A common error for insured individuals and families is to take the process of seeking healthcare for granted. It is important to become savvy in your healthcare insurance coverage. Depending on “when” and “how” you access the health system services, the charges may be dramatically different for the very same service. For example, the failure to seek pre-approval for services under some plans means the total cost of the service will not be covered.


Under-insured and uninsured. From the start of 2016 into 2019, the number of persons uninsured rose from 10.4% to 12.1%. That comes to around 30 million people in America at the start of 2020. And then, yes, a COVID-19 pandemic made all bad things even worse. Demographically, Latinos, blacks, and younger adults dominate the uninsured statistics.


Out-of-pocket costs and gap coverage. For many people, the concept of “gap insurance” was always tied to Medicare patients. But, for the past 40 years, associated healthcare costs have been inflating. In order to offset these costs while still offering coverage, healthcare companies transitioned to offering higher-deductible plans. This lowers the cost of premiums while inflating the consumer’s amount of out-of-pocket spending.


In 2006, only 4% of all Americans enrolled in a high-deductible plan. In 2019, that number surged to 30%. This has led to inflated copays and burdensome out-of-network payments. And let’s be honest, most people don’t even understand what or how much is covered.


So, What Now? Can Medical Bankruptcy Be Avoided?


Change begins with transparency and education. Many Americans have no idea what their healthcare deductible is. Many Americans have no idea what procedures or tests are going to be ordered or have been ordered and will be covered by insurance. Most people are just trying to find out what is wrong with their body. But, taking a moment to ask simple questions along the way can head-off a barrage of surprise bills not accounted for in personal budgets.


The recent passage of The No Surprises Act aims to resolve this issue, and healthcare providers will be required to provide full transparency on costs, when requested, as of January 1, 2022.


Look for billing errors. Don’t assume that hospital billing departments 'got it right.' Healthcare institutions often make mistakes. Modern Healthcare estimates that nearly 80% of healthcare bills have some kind of error. Read the following article for the myriad of ways that your bill could be incorrect: https://www.modernhealthcare.com/finance/identifying-addressing-common-medical-billing-errors-pre-post-payment


It’s important to note that there are people who can assist you with your billing reviews. Advocates can range from your benefit broker to knowledgeable healthcare professionals and attorneys. Depending on the size and risk of the bills that you have received, don’t ignore them and think your health system will work with you. It is most likely not the case in today’s environment. Take initiative and seek help!


For more information, get a FREE consultation on your healthcare coverage with Indigo Partners.