January 9, 2012

Sometimes, Health Insurance Is Not Enough

By  Michael D. Shaw

Many commentators—including this writer—have noted that the current obsession with health insurance, and its dominance of any discussion of our health care system, has caused people to completely ignore other pieces of the puzzle. For example, there is little concern for quality of care or outcomes, as long as it is being paid for by others. Likewise, the way doctors are mistreated—with low and still decreasing reimbursements, virtual slave labor conditions in residency programs, and the insufficient number of those same residency spots—is seldom a topic covered in the media.

We can add one more unheralded issue to the list: Medical-related bankruptcies. According to a paper entitled “Medical Bankruptcy in the United States, 2007: Results of a National Study,” published in August, 2009 in the American Journal of Medicine, using a conservative definition, 62.1 percent of all bankruptcies in 2007 were medical-related. This classification was based on the debtors’ stated reasons for filing, income loss due to illness, and the magnitude of their medical debts.

This particular study was a follow-up to an earlier effort published in 2001, which pegged medical-related bankruptcies at 46.2 percent. As the authors note, “Since then, health costs and the numbers of un- and underinsured have increased, and bankruptcy laws have tightened.”

Lead author Steffie Woolhandler, MD, MPH, of Harvard Medical School noted that: “Unless you’re a Warren Buffett or Bill Gates, you’re one illness away from financial ruin in this country. If an illness is long enough and expensive enough, private insurance offers very little protection against medical bankruptcy, and that’s the major finding in our study.”

Indeed, as Woolhandler remarked, “78 percent of [those studied] had health insurance, but many of them were bankrupted anyway because there were gaps in their coverage like co-payments and deductibles and uncovered services. Other people had private insurance but got so sick that they lost their job and lost their insurance.” Most medical debtors were well educated, owned homes, and had middle-class occupations.

Not surprisingly, given its findings, the study was criticized. After all, the popular concept of a bankrupt is someone who goes into excessive irresponsible debt, and tries to take the easy way out. Moreover, as stated earlier, if universal health insurance is constantly touted as “the answer,” how do the pundits reconcile that 78 percent of these bankrupts did have health insurance?

Well, one way is to argue that they were already living on the edge, and the medical expenses just sealed their fate. Another is to attack the authors because they are all in favor of a national health care system, as was done by The Atlantic senior editor Megan McArdle. Given a moment’s reflection, however, you will see the fallacy in this line of reasoning.

Whether private or public, a health insurance plan will make sure that the doctors and hospitals get paid. But, if the sick person cannot work, absent some sort of disability coverage, how does that income get replaced? In most cases, he is forced to run up the credit cards, and this leads to the bankruptcy filing. McArdle also quibbled about the methodology and definitions, and the timing of the study vis-à-vis the tightening of the bankruptcy laws.

We can debate whether or not the 62.1 percent figure is too high, but even critics won’t deny that whatever the true figure, it is significant. For some, bankruptcy may be the only answer, and they are advised to obtain the best legal help available. One highly regarded law practice that operates in this space, and provided some background for this article, is the Jerome S. Cohen firm of Los Angeles.

Prudent planning is certainly an alternative to bankruptcy. I recently spoke with Diane Jaques, an independent agent for supplemental insurance carrier Aflac. Diane, based in Concord, MA, told me that while most people are familiar with the Aflac duck, far fewer realize that one of the company’s lines of business is insurance that covers what health insurance does not. These expenses could include:

• Deductibles
• Out-of-network specialists
• Experimental treatment
• Travel and lodging when treatment is far from home
• Child care and household help
• Normal living expenses, such as your car payment, mortgage/rent and utility bills

Sadly, before she became an Aflac agent, Diane experienced all of these and more—without the benefit of supplemental insurance—when her husband suffered a terminal illness.

It’s these kind of things that people don’t think about. They might have great medical insurance, but they don’t think about all of the out-of-pocket expenses. There could also be loss of income if you can’t work, and if your spouse has to take care of you, there could be dual loss of income. It can be devastating.

Food for thought, for this New Year.