Years ago when the Affordable Care Act was being pushed by Democrats there was a lot of attention given to the number of bankruptcies being driven by medical bills.
Estimates of hundreds of thousands, if not more than a million, bankruptcies being driven by medical bills each year in the United States were common.
Regardless of what the exact number is, it doesn’t take a detailed analysis or understanding of the health care system in the United States to conclude that a lack of health insurance and, in turn, medical bills, drive bankruptcy.
Ever since the Affordable Care Act was passed a decade ago we’ve moved past the issue of pre-existing conditions not being covered, which certainly drove unaffordable medical bills. Think about it – if someone had previously had cancer so their health insurance flagged it as a pre-existing condition that they would not cover, it’s pretty obvious what would happen if the cancer returned. 99% of the population would find the out of pocket bills from cancer care to be unaffordable.
The Affordable Care Act gave us two important things: outlawed the practice of denying claims due to pre-existing conditions and gave everyone – regardless of employment – at least one option for health insurance coverage.
So are medical bills still driving bankruptcy in the United States?
The short answer is “yes, but it’s complicated.”
The simplistic way to tell whether medical bills are driving bankruptcy is by looking at bankruptcy filings and flagging whether or not medical bills are present. The problem with this approach is that it oversimplifies bankruptcy. If someone has credit card debt, a large mortgage, and a lack of savings, their bankruptcy filing may include medical bills but it may not be the leading cause.
But that doesn’t mean it’s not not the cause.
Before we dive into some of the dynamics of bankruptcy further I’ll share a story about health care and financial struggles that I heard recently that has really stuck with me.
A Story that Has Stuck With Me
If you’re from the Twin Cities (Minneapolis & St. Paul), you likely know of a morning DJ who has been on the air for over two decades, Dave Ryan. Each holiday season they do “Dave Ryan’s Christmas Wish” where they essentially surprise families with things like gift cards, presents for children, a Christmas tree, appliances, or any other number of things that they need to make their holiday season a little brighter. The families have typically gone through a rough patch and are struggling for various reasons.
These stories and the reactions they have to receiving these things can be real tearjerkers and difficult to listen to. After all, how many of us take the ability to put food on the table and purchase clothes for our kids for granted?
One story I listened to this holiday season has really stuck with me. The family was a single mother of three. One of her children had cancer. She eventually ended up losing her job because of the time she had to take away from the office to care for her child and be with him throughout his treatment. This stretched them financially and she ultimately stopped filling her own prescriptions to save money.
This is unfortunately common in the United States today. According to a study by Prescription Justice, 45 million Americans did not fill a prescription in 2016 due to cost.
The inability to afford prescriptions and ultimately forgoing them is one aspect of the story that sticks with me, but another aspect does as well: the woman lost her job due to caring for a sick child.
While I am unsure whether or not this family has declared bankruptcy, it’s difficult to imagine their finances will be able to hold up on unemployment long-term.
A Few Components to Bankruptcy
There are a few drivers that we can likely all agree can lead to or are a component of bankruptcy:
- Loss of Income (especially for a prolonged period of time)
- Unexpected Expenses (including medical bills)
- Unsustainable Debt
One reason why the cost of health care and its connection to bankruptcy gets so much attention is because of all the different ways health care can lead someone’s finances into a downward spiral. Here’s a few examples:
- Americans Typically are not Prepared for Unexpected Medical Bills
The May 2018 Federal Reserve Report on the Economic Well-Being of U.S. Households in 2017 says that four in ten Americans could not cover an unexpected $400 expense without borrowing money or selling something. The trend in health insurance has been towards high deductible health plans, meaning you typically will have to pay something like $6,000 or even $10,000 before you’ve hit your deductible and your insurance kicks in.Not being able to pay for these unexpected medical bills is what turns them into medical debt. Again, this is debt that most people don’t think they will incur. So when they do incur it, it’s just one more challenge on what may already be tight financials.
- Loss of Income
While a $50,000 medical bill someone who is uninsured may incur is obviously much worse than say $6,000 for someone who is insured and hits their deductible, that $6,000 bill can still be daunting for someone if they experience a loss of income.While there are some protections in place such as unemployment and welfare, it may not be enough for someone who experiences a significant loss of income due to a medical condition (or caring for someone who has a medical condition). The missing piece in health care policy is taking into account the potential for not only unexpected medical bills but also how the economic well-being of an individual or family may be impacted by a medical condition.
There isn’t a clear answer for how many bankruptcies have been driven by medical bills, but it would be difficult to argue that holistically the impact of medical conditions aren’t a primary driver for bankruptcy.
What Can You Do?
I am a policy nerd so I like thinking through macro-level solutions, but the action-oriented person in me also leads me to think through what someone can do at an individual level.
- Emergency Fund
The need for an emergency fund can’t be stressed enough, yet I also know from personal experience how difficult it can be to build one. Regardless I think an emergency fund should take priority even over putting more than the minimum towards your debt.
- Medical Emergency Fund
If you have a high deductible health plan, which typically means a deductible of at minimum a few thousand (and likely $6k+), you need a medical emergency fund. Again, I know how difficult it can be to establish even a primary emergency fund, but socking money away in a Health Savings Account is the only way to protect yourself against unexpected medical bills. Unfortunately with high deductible health plans you could be stuck with a bill for a few grand out of nowhere.
- Long-Term Disability Insurance
One area where most people are probably under-insured is long-term disability insurance. Most employers offer this as a benefit, but I would bet most employees do not have a solid understanding of what is covered and how it works. I also think with a growing freelance/self-employed workforce there is a need for those individuals to look into their options in this space.
All of these suggestions are easier said than done, but they are things that you can work towards to help prevent bankruptcy from loss of income, unexpected medical bills, or otherwise.
There is clearly some huge challenges remaining for policy makers. We may have health insurance coverage options, but they aren’t affordable for most Americans. The Affordable Care Act also didn’t take into consideration how daunting even $500 in unexpected medical bills could be for individuals and families. And finally there is a huge issue of lost income and the lack of insurance/safety net for those who end up losing income from a medical issue.
Note: If you or someone you know finds themselves in a position where their debt is unsustainable, I recommend reaching out to a credit counselor through the National Foundation for Credit Counseling.
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