Financial Risk: Losing Health Coverage

One of the main causes of bankruptcy is medical bills. It’s nice to think that most of the people declaring bankruptcy are doing so because of credit card debt and out of control spending, but many of them are actually doing so because of medical bills. (Credit card debt probably has something to do with it, but $5,000 on credit cards is usually nothing compared to a $30,000 hospital bill.) A good chunk of those who have financially catastrophic medical bills have insurance. Or had insurance.

This state affairs illustrates the financial risk of losing health coverage. If you have health insurance, it may be a pain to pay the premiums, but imagine how devastating it would be if you lost your coverage and then had to pay a large medical bill. While you might not think you are in danger of losing your coverage, it is a real risk for everyone. And not just through the practice of rescission.

Because some have good care and others do not, the price of health insurance rises

Pat Regnier from Money Magazine makes an interesting point about how our system favors an increase in the unaffordability of health insurance:

The people with good coverage aren’t very sensitive to the price of their care. That pushes total costs up, making insurance more expensive and, over time, causing more and more people to lose it.

Over time, this means that more people become at risk for losing their health insurance coverage. And I’m not sure that current attempts at health care reform will really prevent that. So far, the biggest thing to come out of legislative efforts is the fact that everyone will be required to purchase private health insurance or pay a penalty. The exception is if you can’t find a plan that costs less than 8% of your adjusted gross income. How this will reign in costs, I don’t know. Those that can afford it, will just keep on paying more and more until they can’t afford it anymore.

In the end, you need to take steps to help protect yourself. Financial planning can help you build up a reliable store of cash. You can protect yourself through health savings accounts and emergency funds, but, in the end, if something truly catastrophic and unexpected happens, and you don’t have insurance coverage (and even if you do), there is very little that can be done.

Image source: CNN Money