The One Thing That Keeps Bankrupting Americans

Bankruptcies affect both individuals and businesses across the United States. According to the United States Courts’ website, 819,159 individuals and businesses filed for bankruptcy in 2016. While courts do not necessarily require the reason for filing for bankruptcy, anecdotal evidence does point to one major cause, especially when it comes to individuals.

That cause is healthcare costs.

Medical emergencies that catch families without insurance or inadequate insurance usually leads to a bankruptcy filing. This happens because most families either underestimate the importance of medical insurance or the amount of insurance cover needed. When this happens, families and individuals tend to exhaust their savings to cover the expenses.

To understand the issue better, here are some stats:

Medical Bankruptcy Stats

Medical bills account for a substantial portion of expenses most families and individuals incur. According to the CDC’s National Center for Health Statistics, in 2015, the average household spent $9,990 on healthcare-related costs. Since the latest census(2016) pegged average household income at $59,039, this puts healthcare costs at close to 17% of total income!

At such a high percentage, it is easy to see why medical expenses are the leading cause of personal bankruptcies in the United States. CNBC reported that over 2 million Americans are affected by the issue while President Barack Obama pointed out in his 2009 State of the Union speech that a medical bankruptcy was happening every 30 seconds.

What to Believe

Researchers have been torn between ratifying this fact and calling it out as a baseless assumption. Bankruptcy filings do not require that a reason be stated, which is why this fact is in doubt. As a result, statisticians rely on surveys and other sources of anecdotal information instead of cold hard facts.

Nevertheless, there does exist a sufficient body of evidence to point to a correlation even if not a cause and effect relationship. For instance, numerous consumer finance surveys have found that people with other debts will often also have medical debt. It has also been shown, interestingly so, that people with medical insurance were more likely to file for bankruptcy. This may be because people who have insurances are either poorly insured or they may overestimate their insurance coverage.

Avoiding Bankruptcy From Medical Bills

Filing for bankruptcy because of medical bills can ruin your finances. Filing is expensive, and bankruptcy remains in your records for 10 years. This can prevent you from getting loans or even getting a job or buying a home. You can avoid medical bankruptcy by doing a couple of things.

First, take care of your health. If you can avoid going to the hospital you will avoid costly bills. Next, to negotiate adequate insurance coverage call BGA to discuss eligibility and similar offerings. Third, put away an emergency fund of between 6 months and 1 year of living expenses. This should be able to cover the cost of medical care if you are in an accident. Lastly, keep an eye on those deductibles, copays and coinsurance costs. They tend to run up quickly.