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What is Medical Bankruptcy?

Bankruptcy

Actually, there is nothing in the bankruptcy code about medical bankruptcy. But the statistics behind bankruptcy tell a different story. According to the American Journal of Medicine, a majority of people who declared bankruptcy in 2007 said that medical bills were the primary motivating factor. Experts estimate that more than 60 percent of all individual bankruptcies are primarily due to medical difficulties. That makes knowing how to deal with a medical calamity a priority.

Insurance Isn't the Issue with Medical Bankruptcy

According to the 2007 study in the AJM, 68 percent of the people who said they filed a so-called medical bankruptcy had insurance. There's no doubt that a medical calamity can be crippling to an individual or family. But the effects can be severe even when insurance is involved. There's the cost of deductibles, prescriptions that may or may not be completely covered and other holes in coverage that add up over time. Plus, a serious enough medical setback can lead to the loss of a job. That not only affects income but also leads to a loss of insurance.

Ways to Avoid Medical Bankruptcy

  • Try to negotiate with doctors and hospital officials. Explain your situation and try to establish correspondence showing you made a good-faith effort to pay your medical bills. That could come in handy if the issue ends up in court. Hospital officials recognize that something is better than nothing. A patient who files bankruptcy likely will not pay any part of the medical bill. But a patient who calls to talk about their financial situation may find the hospital willing to accept very low monthly payments over a long period of time. That could be the financial break that allows a patient to avoid medical bankruptcy.
  • If you work for a company, talk to your co-workers in Human Resources. These are the people who have the most contact with insurance companies. They also have great access to the top officials at hospitals, who are looking to keep their clients as happy as possible. It's possible that the insurance company may be motivated to keep the client happy and work out an arrangement that will avoid medical bankruptcy.
  • Consider a Health Care Reimbursement Account. These are available through your employer. The idea here is to pay these accounts with pre-tax dollars. There is a limit as to how much money can be deposited into the account and the money can only be used for approved medical purposes. But paying medical costs - from prescriptions to insurance plan deductibles - with pre-tax dollars saves money.

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