The Last Personal Finance Straw: Medical Debt

Struggling to make ends meet can be a way to survive, but it gets awfully hard if you or a family member gets sick. Millions of Americans are pushed over the edge into bankruptcy or foreclosure because of high medical bills.

In today's economy, you don't need to worry about the straw that broke the camel's back-as long as your back is fine. Rising medical expenses are putting even more strain on debt-burdened households, forcing some to choose bankruptcy as a last resort debt settlement tactic.

High premiums, low coverage

Rising premiums and deductibles are a discouraging combination for families who are barely making ends meet. According to the National Coalition on Health Care, premiums for employer-sponsored health policies rose by more than 6 percent last year. Further, the annual premium charged to employers in 2007 to cover a family of four was $12,100; employees were forced to pay $3,300 of this, which is 10 percent higher than they paid in the prior year. Even more shocking is that between 2000 and 2007, the cost to employers for their health premiums doubled. Inflation growth during the same period was 24 percent, while wage growth was 21 percent.  Numbers like these can make both employers and employees sick.

In 2008, health care costs have risen 5.7 percent. And they're projected to go up by an equal amount next year, as well. These increases, combined with a weak economy, are having a worrisome impact on American households. Families, who are already struggling to keep up with mortgage payments, credit card debt, and living expenses, don't have the breathing room to absorb these higher costs.

Stay healthy or stay solvent

The Commonwealth Fund, a private foundation that promotes an improved health care system, estimates that 41 percent of working-age adults are battling with medical expenses.

An April 2008 poll conducted by Kaiser indicates that 28 percent of Americans have recently had difficulty paying for health care or insurance. This compares to 19 percent who reported difficulties making rent or mortgage payments, and 18 percent who had trouble with credit card or other personal debts. Twenty percent of respondents said their health care expenses were seriously impacting their ability to pay other household bills.  

Harvard Medical School associate professor of medicine, Dr. Steffie Woolhandler, says that half of bankruptcy cases result from the "shock" of a sudden accumulation of health care costs. Woolhandler contributed to a 2005 report that studied the link between bankruptcy and medical expenses. The report indicated that:

• The average out-of-pocket medical debt for bankruptcy filers was $12,000

• 68 percent of bankruptcy filers had health insurance

• Half of all bankruptcy filings were influenced by the presence of medical bills

Given that the economy has worsened, and health care costs have risen since 2005, these trends will undoubtedly continue. Debt-strapped families will manage as best they can, by self-treating their sore backs and fevers, and praying they can avoid more serious health problems in the future.