True Risk of Future Health Expenditures?

[Herr Handlebar]

I was struck by one of the comments in the Washington Post online. ParakeetsRule stated, "Most people who declare bankruptcy here do it because of medical bills, and most of those people had health insurance." If one has reasonable health insurance how does this happen? Is it a problem with lifetime maximum coverage being too low? Is it a problem with conditions that are not covered? How are people with health care coverage ending up in such dire straights due to medical emergencies?

[Hamster]

Quick answer: "Annual Limits" and "Lifetime Limits". Basically, insurers have traditionally declared a maximum amount that they are willing to pay you to cover your insurance needs. After that you are bankrupted and then you get Medicaid instead so the government will be liable, rather than the insurance companies.

All that is changing with the affordable care act/Obamacare - ""I do care". But, insurance plans that haven't changed materially since Mar 23, 2010 may still get to play by the old rules (see below).

We could get into a long discussion of why insurance exists, and why health insurance that pays for basic routine small expenses, but has lifetime caps on what they are willing to pay are not really insurance, but bulk purchasing/negotiating arrangements.

http://www.healthcare.gov/law/features/costs/limits/:

The Affordable Care Act prohibits health plans from putting a lifetime dollar limit on most benefits you receive. The law also restricts and phases out the annual dollar limits a health plan can place on most of your benefits — and does away with these limits entirely in 2014.

What This Means for You
Before the health care law, many health plans set an annual limit — a dollar limit on their yearly spending for your covered benefits. Many plans also set a lifetime limit — a dollar limit on what they would spend for your covered benefits during the entire time you were enrolled in that plan. You were required to pay the cost of all care exceeding those limits.

•Under the law, lifetime limits on most benefits are prohibited in any health plan or insurance policy issued or renewed on or after September 23, 2010.
•The law restricts and phases out the annual dollar limits that all job-related plans, and individual health insurance plans issued after March 23, 2010, can put on most covered health benefits.
...
•If you have a “grandfathered” individual health insurance policy, your health plan is not required to follow the new rules on annual limits. (A grandfathered individual health insurance policy is a plan that you bought for yourself or your family; that you did not receive through your employer; and that was issued on or before March 23, 2010.) If you’re not sure whether your plan is grandfathered, ask your insurance company.

[the fixer]

The other big problem is copays. Insurance has max out of pocket limits per year but I don't think that includes copays for every doctor's visit and prescription drug you have to buy. If you end up with a chronic condition our healthcare system will easily find lots of specialists for you to visit and lots of drugs for you to take.

Also, many American consumers are operating with no safety margin in their finances. They would need health insurance to pay for all of a chronic condition in order for them to avoid financial ruin.

EDIT: just Googled and I was partially right. Whether or not copays are included in out-of-pocket max varies by insurance policy.

[BPA]

:(  I know that there is a lot of criticism of Canada's healthcare system by many who don't want to see its equivalent in the States, but I can honestly say that this issue is nothing any of my friends, family or I have ever had to worry about. 

[Spork]

I read one study on this (sorry... can't remember the source) where when they went through multiple cases.  Yes, medical was the key expenditures in bankruptcies, but they also found that a huge majority of the folks also just had financial issues to begin with.  In other words: they were living month to month and got hit by a medical problem.

I can't say (especially without remembering the source) if this is statistically true in general.

[AJ]

I read one study on this (sorry... can't remember the source) where when they went through multiple cases.  Yes, medical was the key expenditures in bankruptcies, but they also found that a huge majority of the folks also just had financial issues to begin with.  In other words: they were living month to month and got hit by a medical problem.

I can't say (especially without remembering the source) if this is statistically true in general.

I know a number of people in this very scenario. My mother was in ICU for 10 days - with a six figure cost before insurance. Her out of pocket portion of that was $6k and she is considering claiming bankruptcy. If asked, she would tell you medical bills caused her bankruptcy - she wouldn't mention the credit card bills she racked up beforehand. So, was it the credit cards or was it the medical bills?

I'm not saying that is all or even most of the situations - but it is far from uncommon.

[bogart]

I believe much of the research on this (certainly the better known stuff) is work done by Elizabeth Warren, the same one who is now a senator.  You can find an example here: 
http://www.law.harvard.edu/programs/petrie-flom/workshop/pdf/warren.pdf . 

To quote that, "Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families: $26,971 for uninsured patients, $17,749 for those with private insurance at the outset, $14,633 for those with Medicaid, $12,021 for those with Medicare, and $6545 for those with Veterans Affairs/military coverage. For patients who initially had private coverage but lost it, the family’s out-of-pocket expenses averaged $22,568. 

Among common diagnoses, nonstroke neurologic illnesses such as multiple sclerosis were associated with the highest out-of-pocket expenditures (mean $34,167), followed by diabetes ($26,971), injuries ($25,096), stroke ($23,380), mental illnesses ($23,178), and heart disease ($21,955). 

Hospital bills were the largest single out-of-pocket expense for 48.0% of patients, prescription drugs for 18.6%, doctors’ bills for 15.1%, and premiums for 4.1%. The remainder cited expenses such as medical equipment and nursing homes. While hospital costs loomed largest for all diagnostic groups, for about one third of patients with pulmonary, cardiac, or psychiatric illnesses, prescription drugs were the largest expense."

Though not included in the above quotes, the article also makes the point that serious illness is also often associated with lost income.

I broke my shoulder a few years back, and with "good" health insurance paid about $4.5K out of pocket over the next 6 months.  Some of that was bad luck -- I was out of town when the break occurred, and started in a hospital where initially they were going to do the surgery (admitted me, etc.) but then decided they weren't the right place to do it and I was released, went home, connected with a local surgeon, etc.  But none of my drug copays (which were minor) or PT copays ($45 per, 2 visits per week for a LONG time and well worth it) counted toward my out-of-pocket max.  And while I was fortunate to have plenty of paid time off work available, unsurprisingly, breaking the arm while on vacation with my family led to necessary itinerary changes and associated costs.  Plus, I couldn't drive for easily 3 months, maybe more (and I certainly couldn't bike for a much longer time than that).

[Spork]

I believe much of the research on this (certainly the better known stuff) is work done by Elizabeth Warren, the same one who is now a senator.  You can find an example here: 
http://www.law.harvard.edu/programs/petrie-flom/workshop/pdf/warren.pdf . 

To quote that, "Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families: $26,971 for uninsured patients, $17,749 for those with private insurance at the outset, $14,633 for those with Medicaid, $12,021 for those with Medicare, and $6545 for those with Veterans Affairs/military coverage. For patients who initially had private coverage but lost it, the family’s out-of-pocket expenses averaged $22,568. 

The article I referred to (I'll see if I can find it) specifically was targeting Ms. Warren.  IMO, she is Queen of Complainypants.  There is not an article I've ever read of hers that doesn't boil down to "oh you poor dear, it's not your fault."

Judging from the numbers in the quote, it still fits.  If you're bankrupted by a cost of $20k, something is dreadfully, awfully wrong.  Medical entities will let you finance this stuff with a tiny payment forever.  Most will even reduce/dismiss a huge chunk if you just ask.  Yes, there are outliers in that average that are probably HUGE and are understandable.  (But that also implies there are outliers in that average that are really small.)

[Herr Handlebar]

Hey Bogart,

Thanks! That is some awesome info I had not seen before. If those numbers are correct they lead me to believe that even in the average worst case scenario these types of illnesses would, post FI, be a non-impaired-spouse-goes-back-to-work event and not a all-your-base-are-belong-to-us event. I'm not sure what the true worst case is but I'm not sure you can actually plan for it anyway. Black swans and all that jazz.