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relationship of health care expenses and bankruptcies

Last post 06-09-2008 2:24 PM by Ronald Hernesko. 6 replies.
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  • 02-02-2008 2:24 PM

    relationship of health care expenses and bankruptcies

    Bill Moyers recently interviewed Katherine Newman, who wrote the book The Missing Class, just one of several she's written about how regular people live their lives and cope from paycheck to paycheck. She teaches at Princeton University, where she also directions the Institute for International and Regional Studies. They discussed how many people including the middle class are struggling in a world that they increasingly feel estranged from. One of the topics was the causes of debt and bankruptcy. The following is an excerpt from the transcripts of his January 28, 2008, interview:

    BILL MOYERS: Are people going into debt merely because they're spending too much money?

    KATHERINE NEWMAN: The biggest source of bankruptcy, the biggest pressure leading to bankruptcy is actually medical expenses. So this is not what we would call  out there buying Cadillacs.

     

    BILL MOYERS: More people are going into bankruptcy because they can't afford their medical bill?

    KATHERINE NEWMAN: That is the biggest push toward bankruptcy for most people who file. It's an unexpected and very high medical cost. And this is something we don't really appreciate. We often think, oh, well, they've been on a spending spree they couldn't afford. But it's a spending spree with taking care of a spouse who is ill, or, you know, a ruptured appendix. Well, that's not really a very discretionary expense. You sort of have to do that. And that is a really important reason why we're seeing a lot of people reach bankruptcy. The foreclosure crisis, of course, is not helping matters.

    Her concerns are not without substance.

    The following article was published by consumeraffairs.com on February 3, 2005.

    According to a 2005 Harvard University Study , Illness and medical bills caused half of the 1,458,000 personal bankruptcies in 2001, according to a study published by the journal Health Affairs.

     

    The study estimates that medical bankruptcies affect about 2 million Americans annually -- counting debtors and their dependents, including about 700,000 children.

    Surprisingly, most of those bankrupted by illness had health insurance. More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage at least temporarily by the time they filed for bankruptcy.

    Most of the medical bankruptcy filers were middle class; 56 percent owned a home and the same number had attended college. In many cases, illness forced breadwinners to take time February off from work – losing income job-based health insurance precisely when families needed it most.

    Families in bankruptcy suffered many privations -- 30 percent had a utility cut off and 61 percent went without needed medical care.

    The research, carried out jointly by researchers at Harvard Law School and Harvard Medical School, is the first in-depth study of medical causes of bankruptcy. With the cooperation of bankruptcy judges in five Federal districts (in California, Illinois, Pennsylvania, Tennessee and Texas) they administered questionnaires to bankruptcy filers and reviewed their court records.

    Dr. David Himmelstein, the lead author of the study and an Associate Professor of Medicine at Harvard commented: "Unless you're Bill Gates you're just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick."

    Today's health insurance policies -- with high deductibles, co-pays, and many exclusions -- offer little protection during a serious illness. Uncovered medical bills in 2005 averaged $13,460 for those with private insurance at the start of their illness. People with cancer had average medical debts of $35,878.

    "The paradox is that the costliest health system in the world performs so poorly. We waste one-third of every health care dollar on insurance bureaucracy and profits while two million people go bankrupt annually and we leave 45 million uninsured" said Dr. Quentin Young, national coordinator of Physicians for a National Health Program. End article excerpt.

    To pull things together, a deeply disturbing question  that Katherine Newman raised is:  “The question is, who's "we"? Is the "we" really the inclusive "we" that it-- that once was? You know, when prosperity was growing after World War II, when we had really a long, long period of shared prosperity, everybody was doing better. We now see these projections that kind of fan us out into haves at the top and have-nots at the bottom and the gap is widening”

     

    Questions that I have are:

    As planners/leaders, are you seeing  health care a  cause of bankruptcy ?

    How is it affecting your clients?

    How do you introduce  health care as a topic with your clients?

    As planners/leaders should we be concerned about the narrowing inclusively of “we

     

     

      

     

    Martin Siesta CFP, ChFC, MSFS
    Compass Wealth Management
    Maplewood NJ
  • 02-04-2008 7:42 AM In reply to

    Re: relationship of health care expenses and bankruptcies

     I generally don't see health care as the direct cause of bankruptcy.   The folks that come see me that are facing bankruptcy are there due to job losses plus being generally overextended and the loss of income forces the issue.  I do have clients with major health issues but they still enjoy good insurance.  I introduce health care into every engagement - it's part of my questionnaire and part of the planning.  First it asks about health insurance and cost of monthly medication.  In person, I'm taking notes from the conversation that starts in that part of the questionnaire.  So I get details of what level of insurance they have (is it based on a situation that may be changing - divorce, someone staying home, moving jobs, etc.) or is it catastrophic insurance and if so, is anything excluded (do they have a prior existing condition that is likely to come back and hit cash flow going forward). 
     
    A cash flow issue that frequently comes up (but doesn't rise to bankruptcy) is when clients have to COBRA their benefits for some period of time on their own dime - most do it for a few months but since it can rival the cost of housing, they usually bail during the period to catastrophic individually owned until they are back under an employer.  But some never go back so they live with crappy insurance.  They usually lose the other coverages too - dental, vision, etc. which can lead to big bills.  Recently a client had over $50k of dental work done. 
     
    Bonnie
     
    Bonnie A. Hughes, CFP®
    NAPFA Registered Financial Advisor
    A & H Financial Planning and Education, Inc.
    www.ashbyandhughes.com
    770.420.8495 (voice)
    706.413.1355 (Fax)
     
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    ----- Original Message -----
    Sent: Saturday, February 02, 2008 4:27 PM
    Subject: [FPA_Healthcare] relationship of health care expenses and bankruptcies

     

    Questions that I have are:

    As planners/leaders, are you seeing  health care a  cause of bankruptcy ?

    How is it affecting your clients?

    How do you introduce  health care as a topic with your clients?

    As planners/leaders should we be concerned about the narrowing inclusively of “we

     

     

      

     




    Bonnie A. Hughes, CFP®
    The Enrichment Group
    7355 SW 87th Ave
    Miami, FL 33173
    305.274.1600, x 31
    706.506.5582 (cell)
  • 02-04-2008 11:32 AM In reply to

    Re: relationship of health care expenses and bankruptcies

    Seems to me that it would be easy to determine if she is correct in her assumption that the leading cause of bankruptcy is health care related.  Bankruptcy attorneys would probably be a good source on this.  I agree with Bonnie on how she handles the conversation.
     
    ----- Original Message -----
    Sent: Saturday, February 02, 2008 3:27 PM
    Subject: [FPA_Healthcare] relationship of health care expenses and bankruptcies

     Bill Moyer’s recently interviewed Katherine Newman.. She recently wrote a  book The Missing Class, just one of several she's written about how regular people live their lives and cope from paycheck to paycheck. She teaches at Princeton University, where she also directions the Institute for International and Regional Studies..They discussed how many people including the middle class are struggling in a world that they increasingly feel estranged from. One of the topics was the causes of debt and bankruptcy.

    BILL MOYERS: Are people going into debt merely because they're spending too much money?

     

    KATHERINE NEWMAN: The biggest source of bankruptcy, the biggest pressure leading to bankruptcy is actually medical expenses. So this is not what we would call  out there buying Cadillacs.

     

    BILL MOYERS: More people are going into bankruptcy because they can't afford their medical bill?

     KATHERINE NEWMAN: That is the biggest push toward bankruptcy for most people who file. It's an unexpected and very high medical cost. And this is something we don't really appreciate. We often think, oh, well, they've been on a spending spree they couldn't afford. But it's a spending spree with taking care of a spouse who is ill, or, you know, a ruptured appendix. Well, that's not really a very discretionary expense. You sort of have to do that. And that is a really important reason why we're seeing a lot of people reach bankruptcy. The foreclosure crisis, of course, is not helping matters. Her concerns are not without substance

    According to a 2005 Harvard University Study , Illness and medical bills caused half of the 1,458,000 personal bankruptcies in 2001, according to a study published by the journal Health Affairs.

     

    The study estimates that medical bankruptcies affect about 2 million Americans annually -- counting debtors and their dependents, including about 700,000 children.

    Surprisingly, most of those bankrupted by illness had health insurance. More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage at least temporarily by the time they filed for bankruptcy.

    Most of the medical bankruptcy filers were middle class; 56 percent owned a home and the same number had attended college. In many cases, illness forced breadwinners to take time February off from work – losing income job-based health insurance precisely when families needed it most.

    Families in bankruptcy suffered many privations -- 30 percent had a utility cut off and 61 percent went without needed medical care.

    The research, carried out jointly by researchers at Harvard Law School and Harvard Medical School, is the first in-depth study of medical causes of bankruptcy. With the cooperation of bankruptcy judges in five Federal districts (in California, Illinois, Pennsylvania, Tennessee and Texas) they administered questionnaires to bankruptcy filers and reviewed their court records.

    Dr. David Himmelstein, the lead author of the study and an Associate Professor of Medicine at Harvard commented: "Unless you're Bill Gates you're just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick."

    Today's health insurance policies -- with high deductibles, co-pays, and many exclusions -- offer little protection during a serious illness. Uncovered medical bills in 2005 averaged $13,460 for those with private insurance at the start of their illness. People with cancer had average medical debts of $35,878.

    "The paradox is that the costliest health system in the world performs so poorly. We waste one-third of every health care dollar on insurance bureaucracy and profits while two million people go bankrupt annually and we leave 45 million uninsured" said Dr. Quentin Young, national coordinator of Physicians for a National Health Program.

    A deeply disturbing question  that Katherine Newman raised is:  “The question is, who's "we"? Is the "we" really the inclusive "we" that it-- that once was? You know, when prosperity was growing after World War II, when we had really a long, long period of shared prosperity, everybody was doing better. We now see these projections that kind of fan us out into haves at the top and have-nots at the bottom and the gap is widening”

    Questions that I have are:

    As planners/leaders, are you seeing  health care a  cause of bankruptcy ?

    How is it affecting your clients?

    How do you introduce  health care as a topic with your clients?

    As planners/leaders should we be concerned about the narrowing inclusively of “we

     

     

      

     





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  • 04-08-2008 12:16 PM In reply to

    Re: relationship of health care expenses and bankruptcies

    Yes, health care is a cause of bankruptcy, poor credit reports, and everything that goes along with that.  But you have to read deeper into it than what is presented here.  I used to see a lot of credit reports with 5-10 or more medical collections.  I am not talking about $5,000 and $10,000 bills, I'm talking about $75 and $250 bills.  People have themselves so financially strapped living their daily lives, that they don't have any savings, and so they aren't even paying their little bills.  Of course that leads to poor credit scores, which leads to higher interest rates on all their debts, home, car, credit, etc.  So living on the edge does come back to bite in a big way, leading to bankruptcy.  So it is, sort of, the medical bills that directly lead to financial problems, but the underlying cause is poor financial management in the first place.  We as a nation have forgotten the "save for a rainy day" tool that was used by our forefathers to deal with this situation.

    Is it affecting my clients?  Haven't had any in serious financial trouble that I know about, but I do know that cost of healthcare is a big determining factor in when people retire.

    I talk openly with my clients about it.  I ask them to tell me about what there coverage is. 

    "We?"  Big term.  But remember the old refrain "Figures don't lie, but Liars figure."  Average uncovered medical bill for insured patients in 2005 was $13,460?  Bull.  Even most catastrophic only policies available today cap a persons total medical bills at a lower number than that.  So to say that is an average?  Liars are doing the figuring.  And how are they lying?  Well, what do you include in the figure?  Doctor bills, of course.  Hospital, drugs, tests, etc.  Reached an average of $13,460 yet?  Of course not.  How about a spouses time off work to take you to an appointment?  How about the meals you eat out, because you are too tired to cook when you get home?  How about the emotional stress on your family?  Can you put a value on that?  I'll bet this guy did, to come up with his numbers.

     So lets come up with something realistic.  My oldest daughter was in intensive care for 11 days a couple years ago.  Ran up $130,000 in total bills.  With my $1,000 deductible, 80-20 plan, my out of pocket was $2,000.  Yeah, I took time off from work to be with her.  Yeah, my wife and I ate out, frequently, during this time.  We eat out too often as it is, so that wasn't a big change.    With that big a claim, we never did approach anywhere near $13,460.

    A bigger, and more realistic, part of the health care issue is the cost of insurance.  This daughter is now married.  She has coverage through her employer, but her husband isn't covered, because they as a couple decided not to spend the $225 per month extra to put him on her policy.  My $1,000 deductible, 80-20 plan is costing over $800 per month for myself, my wife, and one remaining child at home.  Frankly, I can understand why people choose to go uninsured.  $800 a month is a house payment!

     Not much discussion at the national political level about that!

     

     

     

  • 04-09-2008 5:12 AM In reply to

    Re: relationship of health care expenses and bankruptcies

    Hi Richard:

     

    Part of the average cost was certainly affected by the 38% who had the private insurance initially but had to drop it when they could no longer afford to pay the premium. The Harvard study included 1770 bankruptcy filers. Its wonderful that you are addressing the issue with clients. Last John Nelson conducted an informal survey at the FPA Retreat and found that of those planners questioned many did not address health care   

    Martin Siesta  

    Martin Siesta CFP, ChFC, MSFS
    Compass Wealth Management
    Maplewood NJ
  • 04-09-2008 6:44 AM In reply to

    Re: relationship of health care expenses and bankruptcies

    Hi Martin,

     I understand how that could skew the numbers significantly.   But that even goes to re-inforce my original point.  We don't have a health insurance crisis in this country.  We have an affordability of premiums crisis, and nothing in the current presidential debates addresses this issue.  Unless of course you want to count free health care for everyone a potential solution, which I don't.  If you think it's expensive now, wait until it's free.

     I met with some new clients yesterday afternoon.  I asked them about health insurance, among everything else.  Response was interesting.  They are both covered through her work.  He also has a plan available, and it would cost roughly the same to cover him under her or by himself at his job.  They choose to cover him under her.  Reason:  her plan is simple and easy to understand, his plan is too complicated to understand.  So consumers can make intelligent choices, if we give them the opportunity.

    Richard

  • 06-09-2008 2:24 PM In reply to

    Re: relationship of health care expenses and bankruptcies

    I'm a retired medical professional and I fully believe we have a major medical health care crisis brewing. I'm not promoting Michael Moore but anyone who wants to see a well prepared documentary on our health care system please rent the DVD "SiCKO" from blockbuster. Whether our system should be private or socialized is not the basic issue. Transparency of the insurance company's claims reviews and the rejection rates and reasons should be public information and utilized before recommending specific policies and yes people are declaring bankruptcy from co-payments!  Dr. Ron Hernesko

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