After a year-upon-year tally of the many bankruptcy cases I do each year, I have found that the number one reason why people file bankruptcy is still medical expenses.
Having extraordinary medical expenses is still the number one reason why people file for bankruptcy my research shows.
A 2005 study by Harvard University showed then that 62% of bankruptcy filers filed bankruptcy due to their inability to pay enormous medical expenses after a significant illness or injury. My own records show this still to be true.
Cancer Takes A Financial Toll.
Of the most financially devastating diseases, cancer reigns supreme. The American Cancer Society estimates that the 2010 total cost of cancer in the U.S. rose to $263.8 billion. So perhaps unsurprisingly, a new study by the Fred Hutchinson Cancer Research Center shows a close link between cancer diagnosis and personal bankruptcy. Compared to the general population, bankruptcy rates are nearly twice as high among cancer patients one year after diagnosis. Of the bankruptcies caused by cancer, a surprising 78% reported having some form of health insurance.
Many Are Covered By Health Insurance.
Overall, three-quarters of the people with a medically-related bankruptcy had health insurance.
I found a very high percentage of people who filed had health insurance, but many of them were bankrupted anyway because there were gaps in their coverage like co-payments and deductibles and uncovered services. Other people had private insurance but got so sick that they lost their job and lost their insurance.
Many middle-class Americans feel insulated from these growing costs by medical insurance, but often when serious medical problems arise, that safety net either disappears or proves to be full of holes.
For Most, Health Insurance Is Employer-Based.
For most, medical insurance is employer-sponsored. That means the insurance can disappear when illness or injury makes working impossible.
Although COBRA laws allow the employee to extend the insurance coverage by assuming payments, that solution falls short for many. COBRA can be very expensive and coverage is limited in duration, so an illness or injury that prevents work in the long-term will ultimately outlast those benefits.
Even people with active medical insurance coverage often end up with large bills as co-payments, non-covered services, and other out-of-pocket expenses mount.
Although many policies include “catastrophic” provisions that limit out-of-pocket expenses, the cut-offs are often so high that policyholders are bankrupted by the medical expenses that fall in the gap.
These radically mounting medical bills haven’t been absorbed easily by the average American family.