Why People With Health Insurance Still Go Bankrupt

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Most of us believe that having adequate health insurance will insulate us from a medical bankruptcy. Our parents taught us how to prepare for the future, and we’ve done everything right… right?

So it may come as a shock to learn that about 70 percent of medical bankruptcies are filed by people with health insurance. Yes, 70 percent!  That’s a whole lot of people who thought they were prepared. How do people with health insurance still end up going bankrupt?

1) Out-of-network care. While traveling, a medical incident can result in exorbitant fees from out-of-network hospitals (not to mention unscrupulous doctors who may choose to take advantage of your sudden emergency). Out-of-network emergency care is rarely fully reimbursed.

Take, for instance, the story of the rattlesnake bite that translated into a $100,000.00 medical bill. The victim was hiking in Wyoming and had to be transported to a nearby hospital. The cost for rattlesnake anti-venom? About 20,000 dollars per vial — and the typical treatment takes four to six vials. One unexpected snakebite quickly turned into bankruptcy.

2) Balance billing. In a hospital, specialists who simply assist or consult with your doctor can surpise you with a bill for out-of-network charges.

When a semi-retired salesman needed a cardiac procedure in 2007, he called his insurance ahead of time to confirm his doctor and the hospital were in-network. However, the anesthesiologist who assisted was out-of-network, resulting in a bill of over a thousand dollars.

3) Non-covered expenses. Alternative treatments may be vital, but that doesn’t mean insurance plans will cover them.

Take Sonya, who was diagnosed with autism at age four. Her family sought therapy from various specialists, including speech therapists. Though commonly prescribed, much of the care was not covered. By the time Sonya was 20 years old, her family owed more than $60,000.00 and had to file for bankruptcy. No wonder Time Magazine reported on the exorbitant lifetime costs of autism.

4) Annual limits or lifetime limits on coverage. These are far-too-easy to reach when an individual is diagnosed with a complex or long-term condition, such as cancer.

Take the story of Hayley. At age 6, she was diagnosed with primary sclerosing cholangitis, a progressive liver disease. Her family’s insurance had a  lifetime benefits cap of one million dollars per person along with limited transplant coverage up to $250,000. This was not enough to pay for the new organ that Hayley received.

5) Unaffordable premiums. Often purchased through non-group plans, premiums for some plans can be more than most of our mortgage payments.

When a self-employed artist first signed up for a non-group health plan for his family in 2005, he found the premiums to be affordable. In 2009, he was diagnosed with prostate cancer. By then, his monthly premium had reached $1,200. To pay for the medical bills, he used credit card cash advances that he tried paying off with his retirement savings.

Unfortunately, just having health insurance doesn’t mean you’re “prepared”.  Be aware of your expenses, plan for the future, and don’t be afraid to set aside money for possible emergencies in a designated savings account.

For tips on how to set aside money for health care, see our article Budgeting for Near and Long Term Health Care Costs.