According to a new report from the American Journal of Public Health, more than two out of three bankruptcies these days are caused by medical issues – including income loss due to illness, pricy hospital bills, or a combination of both. Other studies published in the last few months, like one from NerdWallet Health, saw the same trend, finding health (or the lack thereof) as the biggest contributor to financial ruin for Americans.
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Of the 900 cases examined by the American Journal of Public Health, many of the people who filed for bankruptcy didn’t appear to have been at risk. They were properly insured and some of them even had a comfortable financial buffer that should have protected them from ordinary hardships.
But according to David Himmelstein, lecturer at Harvard Medical School and the lead author of the study, middle-class Americans with insurance are actually the most likely to go bankrupt out of any group outlined in the report:
“Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy. For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, copayments and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss — just when families need it most.”
Making matters worse is the rising the cost of healthcare, a figure that increases by about $100 per month. In 2018, the average American “nuclear family” of four racked up a bill of $28,166 in medical expenses according to employer-sponsored PPO statistics as reported by the Milliman Medical Index.
That’s just an average cost, including normal health maintenance activities like regular checkups and preventative care. Imagine how high that number could go in the event of a traumatic injury or illness that requires a lengthy hospital stay.
“That’s the triple whammy,” says Himmelstein.
Of course, you could always plan on not getting sick. If you’re not in the doctor’s office, they can’t bill you, right?
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Even that strategy doesn’t seem to help, sadly. Bankrate.com reported last year that 44% of Americans ended up incurring “unexpected” medical expenses – a devastating statistic that caused roughly 530,000 families to go bankrupt in 2018 according to the American Journal of Public Health’s study.
But in addition to the high costs of medical care, America’s inability to save cash is a major contributor to the bankruptcy epidemic as well. The Federal Reserve found in 2018 that four in ten Americans don’t even have enough money to cover an unexpected $400 expense, let alone a major medical crisis, and more than one in four avoided getting medical attention simply because they couldn’t afford it.
The lesson to be learned here is that health insurance – while still somewhat necessary – is merely a façade in the face of serious health issues. The last line of defense protecting your family from bankruptcy is going to be your savings account, and the more you “feed the pig”, the better. Nothing can ruin a retirement more easily than a hospital bill, and until Americans realize that, medical-fueled bankruptcy rates stand to get a whole lot worse.