The financial toll of medical bills: Why healthcare costs lead to bankruptcy | Viewpoint

Medical expenses are the leading cause of personal bankruptcy in the United States. Job loss, often linked to healthcare-related bankruptcy, is a close second.

Jay Eisenstock

Unexpected or chronic medical conditions can quickly overwhelm financial resources, even for those with health insurance. Given that over 90% of Americans have health insurance through commercial or government programs, the prevalence of medical bankruptcy is disconcerting.

Healthcare-related bankruptcy is driven by several factors.

Even with insurance, many people face substantial out-of-pocket expenses through deductibles, copays, and coinsurance. Those without insurance are subject to the whim of the hospital billing department when experiencing a hospital stay.

Hospitals typically utilize a billing system called a chargemaster, which significantly impacts uninsured patients, often leading to excessive out-of-pocket costs. Uninsured patients are typically billed the full chargemaster rates, (think full retail price), which are substantially inflated compared to the actual costs of services or negotiated rates with insurance companies.

Although many patients qualify for financial assistance or charity care programs, some hospitals fail to inform them, leaving them unaware of available aid.

Many insurance plans have coverage limitations or exclude certain treatments. Health insurers are required to provide consumers a standardized summary of benefits and coverage under the Affordable Care Act. This document is meant to provide concise explanations at a sixth grade reading level.

Yet, most people do not thoroughly review their policy details until they face an unexpected medical expense. As a result, many discover too late that their policies won't cover needed care and are forced to pay more out of pocket than anticipated.

Most health insurance plans exclude or limit coverage for experimental treatments and off-label use of common medications, often classifying them as "investigational" or "unproven." As a result, patients frequently bear the financial burden of these interventions, which can amount to hundreds of thousands of dollars in out-of-pocket expenses.

A serious illness or injury can mean missed work or permanent loss of income. This creates a double burden – increasing medical expenses while simultaneously reducing or eliminating income.

Unlike planned expenses such as buying a home or paying for college, medical emergencies often arise without warning. This sudden onset leaves little time for financial preparation, catching many individuals and families unprepared. Studies show that many Americans lack the emergency savings needed to cover major unexpected medical costs.

Unpaid medical bills can quickly spiral out of control due to accumulating interest and penalties. Desperate for relief, many individuals resort to paying these expenses with high-interest credit cards, inadvertently trapping themselves in a cycle of debt.

These factors often combine to create financial catastrophes for individuals and families, even those who initially appear financially stable. This is particularly true for those with chronic conditions requiring ongoing care.

What can be done?

Healthcare is complex and essential, yet unforeseen injury or illness can easily overwhelm a family both emotionally and financially.

Preparation is the key. Consumers should carefully review policy documents, ask questions about coverage specifics, and seek guidance from insurance professionals or healthcare advocates.

Understand and utilize employee benefits including disability and workers compensation insurance options as well as resources available under the Family and Medical Leave Act (FMLA).

For those already struggling financially, advocate for yourself or seek the counsel of a trusted friend or relative to negotiate with the hospital billing department and be sure to inquire about options for financial assistance.

Jay Eisenstock is the founder of JE Consulting.