bankruptcy

Medical debt continues to be the leading reason for bankruptcy filings in the U.S. And it isn’t just the uninsured that struggle with healthcare expenses.

Approximately one in five insured Americans under the age of 65 had trouble paying their medical bills. Of those, 63 percent used most of all of their savings to handle the costs; 42 percent even took on a second job to help pay the debts.

However, some of them end up with medical bills that are so unmanageable that bankruptcy becomes the best option.

In 2016, there were 770,946 personal bankruptcy filings in the U.S. The number includes people of all ages, genders, and marital situations. It represents single professionals, middle-class families, and retired persons

Hospital Stays

On average, the cost of a hospital stay is more than $10,700. A routine childbirth, the most common reason for a hospital stay, runs about $3,600.

A heart attack can easily run over $20,000 per stay while an aneurysm costs more than $34,000. What about a broken leg? That can come with a price tag of $16,796 on average.

For nearly any stay, even if you have insurance, at least some of those expenses result in out-of-pocket costs.

Precisely how much the patient owes depends on the condition and the course of treatment. Additionally, the form of insurance also plays a significant role. Coverage through different insurers, ranging from Medicare and Medicaid to private or employer-sponsored plans, can vary dramatically.

Treating Conditions

The costs above only reflect those associated with a hospital stay, and they certainly aren’t the only source of medical bills.

Cancer drugs cost at least $10,000 per month, while some treatments can cross the $30,000 mark on a monthly basis. Even if you have insurance, you can expect to pay around $24,000 to $36,000 for your medication based on the typically 20 to 30 percent out-of-pocket requirements.

Those expenses don’t include other forms of treatment, like surgeries to remove tumors. Additionally, premiums and co-payments or coinsurance aren’t included in those figures either.

Even Diabetes is Expensive

If you have diabetes, the average annual medical expenditure to treat the condition is $9,601. Plus, since these individuals are at greater risk of developing other conditions, their total medical costs are typically much higher.

When insurers require pre-approval — not just for diabetes treatments but any other medical condition — that can result in astronomical out-of-pocket costs amid the rush to provide an emergency treatment. Yet many insurance companies mandate that certain forms of treatment and types of specialists be made known to them in advance.

Plus, the insurer can choose to turn down your request for coverage,. If you go forward without approval, then you may be responsible for all of the medical bills that come after.

Why Unreimbursed Medical Bills Lead to Bankruptcy

Ultimately, most people who chose to file for bankruptcy do so because they can’t afford to pay their bills. When it comes to medical expenses, bankruptcy creates a path to get out from under the burden.

Typically, medical bills receive the same treatments as unsecured debts, meaning there is no collateral associated with the obligation. Additionally, they may be low-priority debts. This can increase the likelihood of discharge without the need for any additional repayment.

People who file for Chapter 7 or Chapter 13 bankruptcy may find relief from their medical bills. They may also find relief from a variety of other debts. While it results in a severe and long-term hit to their credit, it can be worth it to escape the situation. Especially,  if the medical expenses are genuinely outside of their capabilities.

Bills May Still Be Due During and After Bankruptcy

However, bankruptcy doesn’t necessarily make medical bills go away. The ultimate outcome depends on a much bigger picture: your unique financial situation, including the existence of other debts, current income, and available assets.

If you are considering bankruptcy, it’s wise to consult with an attorney who can review your financial situation and determine which options may be available. Additionally, the attorney can provide you with guidance on whether your medical bills are likely to be discharged.

However, the final decision in that area is in the hands of the judge handling your case, not the attorney. Unfortunately, bankruptcy judges have gotten a lot stricter about forcing debts to be restructured rather than discharged.

Are Bankruptcies Due to Medical Costs Going to Rise?

Recent changes to the Affordable Care Act, also known as Obamacare, significantly affect healthcare exchanges and plans in many states. Since the shifts are fairly new, the full impact is not yet realized.

However, if costs rise, as many expect, the number of bankruptcies involving medical bills could shift upward. Additionally, the removal of the individual mandate may encourage some people to drop their coverage, particularly if the expense for their plan increases significantly.

In early 2018, a federal budget deal cut funding for programs associated with Medicare and Medicaid. While the White House asserts that the savings will come from program reforms, not benefit cuts, it’s difficult to tell how it will actually develop.

Fewer People Eligible for Coverage With Funding Reductions

A possible impact of funding reductions could mean fewer people are eligible for coverage. This could result in a larger portion of the population not having insurance, especially in lower income brackets, where medical bills are harder to manage.

If the amount of coverage shifts, placing a higher burden on those who use the programs, the same scenario could apply.

Even those with insurance through their employers are feeling the burden of shifting medical costs. Changes to federal regulations gave insurers the ability to review the health risks involving children on family plans; this has resulted in  higher premiums for many people in 2018.

Companies Shift The Burden of Health Insurance to Control Costs

Companies that are looking to control their costs often shift more of the financial burden of health insurance onto their workers, increasing the out-of-pocket costs on entire families.

Between 2012 and 2017, the average premium rose by 19 percent, and copays, coinsurance, and deductibles also went up. Between 2005 and 2015, out-of-pocket costs grew 66 percent, or more than double the growth rate of wages during the same timeframe. This can be a big reason for unreimbursed medical bills causing financial hardship to consumers.

Adding to all this, healthcare costs have an above-average rate of inflation: Currently, the annual growth rate of healthcare spending is expected to outpace overall economic growth by around 1 percent for the next decade, so that means that the prices would go up by about 3 to 4 percent annually on average.

All of these factors suggest that medical bankruptcies could increase significantly over time due to unreimbursed medical bills.

Readers, what kind of unreimbursed health-care costs have you had to deal with? And what about bankruptcy? Please tell us about your experience in the comments below.

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Looking for more great articles? Here are a few to get you started:

• Tips to Cut the Cost of Out-of-Pocket Medical Expenses
• 5 Radical Ways to Reduce Debt
• The Benefits of an Individual Voluntary Arrangement

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