The Truth About Medical Bankruptcies and the Healthcare System

Medical bankruptcies are a harsh reality for many individuals and families. Over 66% of bankruptcies are caused by medical expenses.

The US healthcare system is complex and often unaffordable, leading to devastating financial consequences. One in five working-age adults has medical debt.

Many people are unaware of the financial risks associated with medical treatment, and even those with insurance can face unexpected medical expenses. The average cost of a single hospital stay can be over $1,300 per day.

Intriguing read: Period of Financial Distress

Medical bankruptcies are a harsh reality for many Americans. Two-thirds of people who file for bankruptcy cite medical issues as a key contributor to their financial downfall.

The high cost of health care is a major trigger for bankruptcy filings. In fact, 66.5 percent of all bankruptcies are tied to medical issues – either because of high costs for care or time out of work.

Unaffordable mortgages or foreclosure are the second most common reason for bankruptcy, accounting for 45 percent of cases. Spending or living beyond one's means is a close third, responsible for 44.4 percent of bankruptcies.

Here's a breakdown of the top reasons for bankruptcy:

Despite the Affordable Care Act, medical debt remains a major burden for many Americans. In fact, the ACA did not change the proportion of bankruptcies with medical causes, according to a recent study.

About 750,000 Americans filed for bankruptcy in the 12-month period that ended in July 2019. Before taking such a drastic step, it's essential to explore other options.

You could start by asking your hospital or doctor if they have hardship plans, which might allow you to negotiate lower amounts or easier payment options. This can be a more appealing solution than bankruptcy.

With interest rates averaging 20.14% in 2020, paying your medical bills with a credit card can lead to a significant increase in the total amount owed, making it a less desirable choice.

Chapter 7 Bankruptcy is a type of filing that can discharge most of your unsecured debt in just a few months.

You can keep some assets, like your car, necessary clothing, and household items, as long as they don't have too much equity.

To qualify for Chapter 7, you have to pass a "means test" which compares your household income minus expenses to your state's median income.

If you make less than the state's median income, you don't have to pass the means test.

Medical bills are among the debts you can have discharged, including those charged on credit cards or paid with a personal loan.

You'll have to give up other property of value, like investments, expensive clothing, and most jewelry, to help pay your creditors.

For your interest: Bankrupcy Means Test

About 750,000 Americans filed for bankruptcy in the 12-month period that ended in July 2019. Before joining them, consult a bankruptcy attorney or credit counselor to see if there’s a better debt relief option.

High-interest credit cards can make things worse, with rates averaging 20.14% in 2020. That $20,000 medical bill could end up costing $20,000 more if you put it on your Visa.

A debt settlement plan is actually a bad idea, as it can fail and leave you with more debt than you began. You could be sued, and still be charged settlement fees.

A debt management program is a better option, where a nonprofit credit counseling company combines all your bills and works with creditors to find you lower interest rates. You make one monthly payment, and certified credit counselors set up a budget that can get you out of debt in 3-5 years.

Two-thirds of people who file for bankruptcy cite medical issues as a key contributor to their financial downfall. This is often due to high costs for care or time out of work.

Here are some common reasons people file for bankruptcy, according to a study of 910 Americans who filed for bankruptcy between 2013 and 2016:

High healthcare costs are a major contributor to bankruptcy, and the Affordable Care Act has not improved the situation. In fact, inadequate health-care insurance is a key factor in the lack of improvement.

The truth about medical bankruptcies is staggering. 500,000 Americans will go bankrupt this year from medical bills, according to Sen. Bernie Sanders (I-Vt.).

It's not just those without insurance who are affected, either. Even households seemingly well-covered by employer health plans can face financial trouble, with four in 10 reporting problems paying medical bills or affording premiums or out-of-pocket medical costs.

This is a widespread issue, with public appeals for help with medical bills becoming more common. GoFundMe reports hosting more than 250,000 medical campaigns per year, raising over $650 million annually.

Crowdfunding for direct medical expenses is utterly unnecessary in a civilized country, and it's virtually unique to the U.S. among developed countries.

500,000 Americans will go bankrupt this year from medical bills, a staggering number that highlights the financial consequences of the American system of healthcare financing.

More than 250,000 medical crowdfunding campaigns are hosted on platforms like GoFundMe each year, raising over $650 million annually.

Worth a look: Medical Crowdfunding

It's clear that public appeals for help with medical bills shouldn't exist in a well-functioning healthcare system.

Even households with employer health plans face financial trouble, with four in ten reporting problems paying medical bills or affording premiums.

Seventeen percent of households have made difficult sacrifices to pay healthcare or insurance costs, with some reporting extreme sacrifices.

See what others are reading: Colorado Medical Debt Credit Reporting

Medical bankruptcies are a harsh reality for many Americans, with thousands suffering each year.

The role of private health insurers in contributing to these bankruptcies is minimal, aside from adding costs to the healthcare system.

Families often take on debt to pay medical bills, which can eventually lead to financial ruin.

These debts can masquerade as credit card balances, second mortgages, payday loans, or collection lawsuits, making it difficult to track the true causes of bankruptcy.

Hospitals alone can't be held solely responsible for financial distress, as nonhospitalization bills like emergency care, physical therapy, or prescriptions can also be overwhelming.

Explore further: Financial Distress

The California study's reliance on hospitalization as an indicator of financial distress was flawed, as it ignored the impact of chronic conditions that never require hospitalization.

Researchers have differing estimates of the number of medical bankruptcies each year, with economists and business school professors offering lower estimates and medical and legal researchers finding higher numbers.

Medical bankruptcies are a harsh reality for many Americans. Two-thirds of people who file for bankruptcy cite medical issues as a key contributor to their financial downfall.

The Affordable Care Act was supposed to improve things, but it hasn't. Despite gains in coverage and access to care, our findings suggest that it did not change the proportion of bankruptcies with medical causes.

Most people don't realize that their health insurance may not be enough to protect them. Unless you're Jeff Bezos, people don't have very good alternatives, because the insurance that is available and affordable to people, or that most people's employers provide them, is not adequate protection if you're sick.

The numbers are staggering: 66.5 percent of all bankruptcies were tied to medical issues. This means that an estimated 530,000 families turn to bankruptcy each year because of medical issues and bills.

Here are the top reasons for bankruptcy, according to the study:

Most families don't have enough saved for a simple emergency, let alone thousands of dollars in unexpected medical costs. Only 40 percent of Americans have enough saved to cover a $1,000 emergency expense.

Most Americans file for bankruptcy due to medical issues, with two-thirds of people citing medical problems as a key contributor to their financial downfall.

Medical bills can be a major trigger for bankruptcy filings, and the high cost of health care has historically been a leading cause.

According to a new study, 66.5 percent of all bankruptcies are tied to medical issues, either due to high costs for care or time out of work.

This means that an estimated 530,000 families turn to bankruptcy each year because of medical issues and bills.

The Affordable Care Act was expected to reduce the burden of medical debt, but unfortunately, it did not change the proportion of bankruptcies with medical causes.

In fact, inadequate health-care insurance was found to be the culprit for the lack of improvement.

Most families do not have enough saved for a simple emergency, let alone thousands of dollars in unexpected medical costs.

Only 40 percent of Americans have enough saved to cover a $1,000 emergency expense.

Here are the top reasons for bankruptcy filings, according to the research: