A study published in 2005 found that half of all personal bankruptcies in the United States were caused by illness and medical bills. According to the study, which appeared in the journal Health Affairs, about 2 million Americans are touched by medical bankruptcies each year, including 700,000 children.
The study noted that most of those facing medical bankruptcy had health insurance. More than 75 percent were covered by a health plan at the start of the bankrupting illness, but 38 percent had lost coverage at least temporarily by the time they filed for protection from creditors.
While there is sometimes no way to predict a catastrophic illness, much less an accident where medical costs can rise quickly, steps can be taken to soften the financial burden, says Maura Van Heuit, a certified financial planner and owner of Ashland Financial Solutions. They include:
- Don't go without medical insurance — a catastrophic plan with a high deductible can prevent a financial crisis occurring on top of a medical crisis.
- If you are uninsurable, the state of Oregon provides a medical insurance plan called the Oregon Medical Insurance Pool (OMIP) through which you can purchase medical insurance coverage (www.omip.state.or.us).
- Consider long-term disability insurance, which will provide a replacement income if you develop a medical condition that prevents you from working for more than three months.
- Know what the out-of-pocket maximum is for your medical insurance policy.
- Maintain adequate savings. You should have the equivalent of your out-of-pocket maximum for your insurance plan plus three to six months' living expenses at a minimum in savings.
- Take advantage of an employer-provided Flexible Spending Account (FSA) plan, if available. This is an employer-provided savings plan whereby you can deposit pre-tax dollars and use them to pay for medical expenses throughout the year — a use-it or lose-it plan, make sure you plan your salary deferral carefully so you don't lose the money deposited in the plan.
- Take advantage of the Health Savings Account (HSA) plan provision accompanying your insurance if you have a high deductible health insurance policy that allows funding an HSA. Unlike an FSA, you can accumulate balances in the HSA that can be used over the years for health expenses, even into retirement. Funds deposited in the HSA reduce your taxable income dollar-for-dollar, up to the legal maximum. B