Most Go Bankrupt Because of Medical Debt – Don’t Let It Happen to You!!

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bankrupt because of medical debtIn 2017, exactly 767,721 people filed for bankruptcy in the United States. That’s right, in one of the the best economic years to date, over three-quarters of a million people decided that they were in such bad shape financially that it would simply be impossible to get out. Strange, right? Well, not really. Not based on the reason they provided. As it turns out, over half of them went bankrupt because of medical debt.

What I want to do is tackle this stat head on. What’s the detail around it? Would it be possible for people to get out of their medical debt? And how could they avoid becoming part of this stat in the first place?

Bankrupt Because of Medical Debt – How You Can Avoid It

The numbers are actually quite unclear around the exact causes of bankruptcy in America. But, for the last 15 years (at least), it has been estimated that over half of the filers went bankrupt because of medical debt.

To show you the inconsistencies that surround the conversation, here are the claims:

  • Harvard study: 62.1% of bankruptcies in 2007 were caused by medical debt
  • President Obama’s State of the Union Address: “Medical bankruptcy occurs every 30 seconds”…which equates to 1,000,000 per year (roughly 78% of bankruptcy filings in 2009)
  • Popular Facebook Meme: 643,000 medical bankruptcies occur in the U.S. every year (60% of bankruptcy filings in 2013)
  • NerdWallet Research: 57.1% of bankruptcies are due to medical debt

While the exact percentage is unclear, one can be fairly certain that 50% (or more) of the filers went bankrupt because of medical debt.

Why Have So Many People Gone Bankrupt Because of Medical Debt?

There are so many ways to get into debt today, why is medical debt the one that so many people site as the reason for their bankruptcy?

1) It’s the One That Pushed Them Over the Edge

According to a recent CNBC report, 78% of Americans are living paycheck to paycheck. After their mortgage payments, car payments, student debt payments, food, utilities, and clothing, there’s hardly anything left at the end of the month. Tack on a sizable medical bill and suddenly there’s just not enough money to make all the payments. Therefore, most people blame the medical debt for their bankruptcy…even though it’s most often not the largest of their debts…

2) Most Debts Are Calculated, Medical Bills Are Not

Your mortgage loan and your car loan…those are calculated monthly expenses that both you and your bank have figured out. Given the circumstances at the time, you knew that you could swing the payments and the bank was fairly certain that you were in a strong enough financial position to pay them back (otherwise they wouldn’t have loaned you the money in the first place).

Medical expenses are a different story.

Here’s how the process works when it comes to medical “loans”:

  • You get sick,
  • you go to the hospital,
  • they fix you up without question,
  • they send you the bill,
  • annnnd you likely discover that you can’t afford to pay it…

If someone were to look at your financial stability before you went into a procedure, they could have possibly pointed you in another direction that was more suitable to your financial state (I’m not saying they should, but what I am saying is that far too few of us dig into what a medical procedure will actually cost before getting it done…and then realize that we can’t afford it). Since nobody measures the cost, the expense just turns immediately from a bill into debt.

3) Medical Procedures Are Expensive

According to HealthGrades.com, some of the most common surgeries (and their costs) are as follows:

  • Joint Replacement: $16,500-$33,000
  • C-Section: $13,000
  • Broken Bone Repair: $8,000
  • Angioplasty: $20,000
  • Stent Procedure: $18,000
  • Gallbladder Removal: $24,000-$32,000
  • Heart Bypass Surgery: $40,000

Let’s say you have quality insurance that covers 80% of the bill. On average, you’ll still owe $5,000+ for any one of these procedures. Factor in the cost of insurance premiums, and the total average medical costs (premiums and additional expenses) per year are $10,345. Yikes!

bankrupt because of medical debt4) A True Unexpected Expense

For whatever reason, we’re all arrogant when it comes to our health. The assumption is that our body will just continue to move exactly as it did yesterday…last year…and in some instances of extreme arrogance, a decade ago (ha, this one is totally me!). This just obviously isn’t true. In our older age, we’re going to:

  • lose our balance more often,
  • be less health conscious,
  • fall more,
  • break more bones, and
  • undergo more surgeries…

But you know what? There’s just no way to know when you’re going to incur that next medical bill, so it can be extremely difficult to buckle down and create a savings account for the unknown. For this reason, many people just don’t sock the money away for the upcoming unexpected expense…because after all…it’s largely unexpected.

5) The Average Person Has Less Than $1,000 in Savings

Based on a recent survey performed by GOBankingRates, 57% of respondents reported having less than $1,000 in their savings accounts. Combine this lack of saving with the unexpected nature of medical bills…and you’ve got the perfect ingredients for a disaster… ie. people going bankrupt because of medical debt.

6) It Sneaks Up On Us Over Time

Let’s role play here… A few years ago, you had a small procedure that cost you $3,000. You didn’t pay the bill immediately since you didn’t have the cash, and the loan was sent to collections. You still haven’t paid anything on it.

Then, about a year ago, you broke your collar-bone while horsing around with your kids. That bill was $2,500.

bankrupt because of retirementBoth debts seemed manageable at the time…until your recent heart attack. Your quadruple bypass surgery landed you an additional $13,000 in medical debt… Couple those costs with your car loan, home loan, and your upcoming college costs for your kids, and you’re in a world of hurt!

Going bankrupt doesn’t often happen all at once. It comes one small debt at a time. We can keep treading water for a while, but that next unexpected expense might just do you in.

7) We’ll Do Anything to Avoid Death These Days

Remember when you were a kid and the new PlayStation came out? Everyone swarmed the retail stores because they just had to have one! Within a matter of hours, either the store was completely sold out or they raised their prices to make more on the consoles they still had in stock.

Believe it or not, medical procedures can behave in the same way. The higher the demand and the fewer the supply, the more the hospitals can charge for the surgery.  And, demand has gone up in recent years – so much so that 1 in 3 people undergo surgery within one year of their death.

Why is this? I believe, for two reasons:

  1. The bill is largely the government’s – The majority of people that need surgeries and medical procedures are over the age of 65 and are therefore covered by Medicare. More over, if they die soon after the surgery, that debt will simply vanish anyway. Soooo, when the doctor asks, “Do you think you would like this surgery?” It’s almost a no-brainer. You’ll never have to pay the bill and it could extend your life. Ummm, sure! Let’s do the surgery…
  2. People don’t know where they’re going after death – Just a few decades ago, if you would have taken a poll across America and asked, “Where will you go when you die?” I bet the majority would have told you, “Heaven”. Today, the majority might say, “Nowhere” or “In the dirt” or “I’m not sure”. There’s less of a willingness to get to death because people don’t know where they’re going when they finally do kick the bucket. Therefore, it’s becoming more common to fight as long as possible vs. just accepting the fact that you’re old, that you’ve lived a good life, and you’re ready to meet Jesus.

Bankrupt Because of Medical Debt – How to Avoid It

Alright, so it’s clear that medical debt isn’t the only kind of debt that’s putting people in the poor house, BUT it is the one that takes people by surprise and might push them over the financial cliff. So what can you do to guard yourself against becoming bankrupt because of medical debt?

Mainly…stop getting caught off guard.

Medical bills WILL come your way. It’s not a matter of if, it’s a matter of when (remember the stat? On average people get hit with $10,000 worth of medical bills a year!), so you’ve got to budget for this “unknown” spend.

…And this is where you probably say…

“Well that’s great Derek, but where do I get this so-called EXTRA money to stash away for my unknown medical bills? I’m stretched super thin as it is! Sounds like a pipe-dream to me!”

 I get it. Nearly 8 out of 10 households are living paycheck to paycheck, so very few people have extra money to put into yet another savings account. It’s just not happening.

…So now the real question becomes…

“How can we stop living paycheck to paycheck?”

Ahhhh, I thought you’d never ask. 🙂 It’s not going to happen overnight, but it IS possible!

The Absolute Simplest Way to Become Wealthy1) Build Wealth

Based on one of my more popular articles, “The Absolute Simplest Way to Become Wealthy,” it’s going to take just six steps to build wealth:

  1. Save up $1,000 (How to Save Up $1,000 in Just 4 Weeks!)
  2. Get out of debt as quickly as possible (this debt snowball tool will help get you there)
  3. Set up an emergency fund of 3-6 months’ worth of expenses (How to Set Up an Emergency Fund from Scratch)
  4. Invest 15% of your income (8 Reasons I’m Continuing to Invest in 2018)
  5. Pay off your house (How to Pay Off Your Mortgage in 5 Years or Less!)
  6. Invest like crazy!! (How to Survive (and Thrive) on Just One Income!)

Like I said, it’s not going to quickly happen with a simple “Rah-Rah” seminar or a government funded program. It’s going to take hard work and determination…and probably 7+ years. But you know what? The end result is your success instead of your bankruptcy. I don’t know about you, but I say it’s worth a shot!!

2) Have the Proper Insurance

I don’t think there’s anything more boring than looking over your insurance policies, but I encourage you to do so before you get stuck with a massive medical bill.

According to USA Today, you might experience a hefty medical bill because:

  • Your doctor accepted your insurance, but they were outside of your network
  • The insurance company covers only part of the surgery (ie. they might cover a carpel tunnel surgery, but not the incision that it takes to fix it…crazy, but it’s true)
  • There’s missing information, so your insurance provider refuses to cover the bill

The Huffington Post also pin-pointed a few procedures that are likely not covered by your insurance – so watch out for these as well:

  • Travel vaccines
  • Accupuncture
  • Cosmetic surgery
  • Nursing home care
  • Dental and vision
  • Weight loss surgeries

Make a point to know what your policy covers when you sign up for it. And, as a secondary measure, always ask what a procedure will cost you (out-of-pocket) before you go under the knife. The last thing anyone wants is a groggy recovery along with a huge medical bill in your mailbox!

3) Practice Preventative Action

Did you notice some of the most common surgeries today? Angioplasty, stents, heart bypass… In other words, most of us aren’t eating healthy and exercising like we should and our arteries are getting clogged up.

What Does It Mean to Eat Healthy?

Ask anyone on the street if they eat healthy, and they’ll tell you, “Sure I do. I get vegetables every day, I eat my grains, and I hardly ever cheat with ice cream.” Buuuuut, come to find out, their vegetables are often on a pizza that’s loaded with grease, oils, and fats – oh, and also out of a can that’s loaded with sodium; and their grains are from crackers and cereal.

We all think we eat healthy, but very few of us actually do.

So what does it mean to “eat healthy”? Here’s the best article I found on the topic – “How to Eat Healthy – 25 Easy Ways to Eat Healthier“. Basically, you want to:

  • Eat food that you actually grow – like carrots, nuts, berries, etc.
  • Drink more water
  • Snack more often (like with celery…not cookies)
  • Stop eating “low-fat” garbage. It’s still not good for you.
  • Choose meat that hasn’t been processed (ie. chicken, fish, and meat from the butcher)

Oh..and stop eating out so much! While the food might look healthy, those meals are actually loaded with butter and sodium and will almost certainly stretch your waistline. Want to eat healthy? Stick to the basic bullets above.

Best Forms of Exercise

While it’s great to eat right, our bodies need exercise as well.

So what are the best forms of exercise? Harvard Medical School clues us in…

  • Swimming
  • Tai Chi
  • Strength Training
  • Walking

So get out there and swim some laps, move with the grace of Tai Chi, lift some weights, and walk the neighborhood. Keeping those medical bills at bay can be as easy as that!

Bankrupt Because of Medical Debt? No More!

There you have it folks. Now you know how many people become bankrupt because of medical debt, you know how they got there, and you know how to keep from getting there yourself! This post might not make you rich, but it WILL keep you from going broke!

Are you ready to dig in and shield yourself from becoming bankrupt because of medical debt?

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