In 2009, two out of every three bankruptcies in America had a medical cause. Eight years later, the numbers are more promising for medical debt – but not great. It’s not always clear why someone files for bankruptcy, but plenty of analysts and healthcare experts agree that the high cost of medical bills plays a big role, perhaps even the largest one. The number of bankruptcies in general has declined sharply since passage of the Affordable Care Act in 2010. A variety of factors, including a recovering economy, better job growth, tighter bankruptcy rules, and access to affordable health insurance, has cut personal bankruptcy filings in half over the last seven years.
Despite that achievement for consumers nationwide, annual spending on healthcare in America remains exorbitantly high. In 2016, health expenditures hit $3.3 trillion. For perspective, you could send 25 million people to a private college in the U.S. for four years with that level of funding. You could instead buy 99 million average-priced cars or buy everyone on the planet a smartphone for three trillion dollars.
Based on the current population in the U.S., that whopping price tag for healthcare works out to about $10,348 per person and accounts for nearly 18 percent of the gross domestic product. In 1960, healthcare spending accounted for just 5 percent of the economy. Adjusted for inflation, that means that the U.S. now spends eight times more on healthcare than it did when Baby Boomers were kids.
Trouble Paying Bills
Healthcare is pricey. A single day in a state or local government hospital might cost you anywhere from $407 in South Dakota to $4,569 in New Jersey. On average, hospital stays cost around $2,000 a day depending on the type of hospital you’re in and where you live. Hospital care alone made up the biggest share of health expenditures in 2016, representing 32 percent – about $1.1 trillion – of how much the country spent on healthcare. For people with medical debt, hospital bills are the largest out-of-pocket expense, and it’s not hard to see why. One survey by the Kaiser Family Foundation (KFF) in 2016 found that 67 percent of people who were struggling to pay medical bills cited a one-time expense as the cause. That includes hospital stays.
The same KFF report found that 20 percent of people with health insurance struggled to pay medical bills. For those without insurance, the rate jumped to 53 percent. Overall, about 26 percent of adults (aged 18 to 64) said that they or someone in their household struggled to cover medical bills in the previous year. Where you live matters, too. Mississippi has the highest rate of adults facing medical debt at 37 percent, followed closely by Arkansas. Many southern states struggle with medical debt, as do black Americans and young adults aged 25 to 34, who are more likely to have past-due medical bills according to the Urban Institute.
Even with health insurance, people struggle to pay bills due partly to high-deductible plans, high cost-sharing rates and limited savings. Having health insurance is helpful, but it’s not always enough to prevent serious medical bills from destroying your savings.
Expect the Unexpected
Try as you might, you can’t avoid medical problems forever. Even healthy, active people have accidents. In fact, accidents are among the leading causes of death in the U.S., but they cause plenty of nonfatal injuries, too. In 2014, Americans took over 141 million trips to the emergency room. Of those, 40 million visits (28 percent) were due to injuries. Overall, unintentional injuries account for 21 million medical visits each year and add up to $220 billion – and that’s just for things like slipping off a ladder while you change the air vents, tripping over loose rugs or stumbling in poorly lit hallways at night.
Chances are pretty high that you’ll need medical care for other reasons throughout your life, especially as you get older. In 2013, the top five most expensive conditions treated in U.S. hospitals were septicemia (blood poisoning); osteoarthritis; live births; complications from a device, implant or graft; and acute myocardial infarctions (heart attacks). Heart attacks alone cost $12.1 billion to treat in 2013, averaging about $20,086 per hospital stay.
Coming up with an extra $20,000 to cover a heart attack isn’t feasible for most people. Americans are notoriously poor savers and have been since after World War II, but it’s not always by choice. High cost of living, stagnant wages and other factors affect someone’s ability to set aside cash for emergencies, especially unexpected medical crises that hit five figures.
But even smaller, less expensive emergences can be a big problem. In 2016, the Federal Reserve found that 44 percent of adults would not be able to cover a $400 emergency, or they’d have to borrow or sell something to cover it. And it’s not just low-income families who would struggle to come up with that amount. Middle-class households, ostensibly earning well above the poverty line, would also find it hard to cover an unexpected medical bill.
Footing the Bill
The bottom line here is that healthcare can add up quickly. Surveys reveal that even people with health insurance struggle to pay medical bills, so it’s not necessarily an issue of getting a major medical plan – although that is an effective way to mitigate costs. In 2018, the out-of-pocket cap on individual (self-only) major medical plans is $7,350; for families, it’s $14,700. Plans vary, of course, but these are the maximums that you’ll pay before your insurance carrier picks up the full tab for covered services. This can be critically helpful for people who need a lot of medical care, such as cancer patients or people with diabetes, since it limits how much they’ll have to spend for a plan year.
But these caps are high for the average person, and deductibles can be tough to meet. Before your insurance plan will pay its portion of most medical bills, you’ll need to meet a deductible, which will vary widely among plan types and carriers. In 2017, the average deductible for a bronze plan on the marketplace, which is the lowest metal tier and provides the least amount of coverage, was over $6,000. Silver plans, a popular choice among marketplace customers and the benchmark for cost assistance, had an average deductible of over $3,500. These averages are for individual plans. Families paid about twice as much.
If you broke your leg tomorrow, would you be able to shell out $3,500 first, to meet the deductible, and then cover around 30 percent of what’s left after your plan pays its share? If you’re like most Americans, the answer is probably no. The situation would be even more dire without health insurance. If you lived in Tennessee and didn’t have health insurance, you’d be looking at around $12,000 (or more) for that broken leg.
Ancillary Products Can Help
Fortunately, there are ways to bolster your major medical plan or build your own bundle of benefits to provide some protection against high medical costs and the potential for medical debt. Ancillary products, sometimes called “voluntary benefits” in employer-sponsored packages, are designed to alleviate the burden of out-of-pocket costs. Common examples include accident coverage, critical illness coverage, fixed indemnity plans and hospital indemnity plans. Ancillary benefits can also refer to products like dental and/or vision coverage, life insurance and other things that boost your major medical protection. These products can be sold as standalone policies as well.
In general, ancillary products, like accident and critical illness coverage, offer lump-sum benefits. For each covered event, you would get a set amount of money, and that money gets paid directly to you. Best of all, the money can be used for anything. Let’s go back to our broken leg scenario.
- To fix your broken leg, you’ll need to spend about four days in the hospital.
- With a hospital indemnity plan, you might get $2,000 per confined hospital day.
- Based on the average cost of a hospital stay in Tennessee (our example area), you’d be charged about $7,180 just for the hospital portion of your broken leg.
- But because you had a hospital indemnity plan in place, you come out ahead ($2,000 x 4 days = $8,000). You’d have $820 left to cover other out-of-pocket costs or some bills while you’re recuperating.
Hospital indemnity plans may also cover doctor’s visits while you’re at the hospital, bringing your out-of-pocket total even lower. And if you combine a hospital indemnity plan with accident coverage or another ancillary benefit – which would pay a cash benefit based on your broken leg – you’d have a nice cushion to fall back on as you recover. The primary benefit of ancillary products is that the money can be used for anything. It’s paid directly to you, and you can apply it to any expense.
Of course, it needs to be mentioned that these benefits, while advantageous, aren’t a good substitute for major medical insurance if you have a chronic health problem or pre-existing condition. Because these products do not count as minimum essential benefits under Obamacare (the law), they don’t have to play by the same rules as ACA-compliant plans. That means you can be denied based on pre-existing conditions or turned down for other factors like health history. You also may not be able to renew a policy from year to year, especially if you develop a medical problem during the year, and the plan can cap benefits at specific payout amounts.
Despite some obvious drawbacks, there are good reasons to add ancillary benefits to your major medical policy or use them in place of major medical when you can’t afford or don’t want comprehensive coverage. They’re typically much less expensive, even when bundled together, than a full health plan with all the bells and whistles, and they can provide peace of mind if you’re injured or fall ill unexpectedly. You can also enroll in these policies anytime. There’s no need to wait for an open enrollment period.
Not every plan will pay out as much as our example, but these benefits can help you offset the high cost of medical care without forcing you to cover things you don’t want or need. In any case, let’s reiterate: Healthcare is expensive. You need a plan. Before you skip out on insurance altogether, know that there are options available for your needs and budget, even if it’s not major medical.