Once upon a time individuals could choose whether or not they wanted to buy health insurance. But then the government decided that they no longer had the right to make their own decisions about how to spend their money. The government called this the Individual Mandate.
Now individuals have to buy insurance, or the government will sic a little collection agency called the Internal Revenue Service on them. Not really a fairy tale. A fractured one, perhaps.
Bankrupties and the ACA
But… before we take to the streets, it is perhaps wise to understand some of the logic behind the act. Not all the logic, of course, but some. And we might find that perhaps the intent of the ACA had some decent foundational underpinnings. To dive in a little deeper, let’s take a quick look at some statistics that may not seem to be related to the ACA, but in fact, are very closely related to it: Bankruptcies.
From 1980 to 2010, the year the ACA became law, bankruptcies in the US had risen by 381% since 1980. But perhaps more frightening was the fact that bankrupties had skyrocketed 158% since 2006, over 2 1/2 times, in just four short years. So, why is this relevant? Because medical bills are the single greatest cause of bankruptcies in the U.S.
In fact, there are causes and there are causes, but nothing comes close to medical bills. It is the 800-lb gorilla in the room.
The 800-lb Gorilla
Simply put, 70% of all bankruptcies occur due to medical bills. Yep, I said it and you heard me right – 70%. Let’s put that into perspective.
Medical emergencies cause more than twice as many bankruptcies as every other cause added together!
It causes more than twice as many bankruptcies as the loss of a job, or the death of the primary income-earning spouse, divorce, or unexpected disasters – ALL combined! That’s staggering. But there is more to this story, and, to my mind, this deeper look is the REAL (and scary) part of the story.
Of those 70% of bankruptcies caused by medical bills, 70% those were filed by people who had insurance. How can this be? It’s easy to quickly assume these people weren’t covered. And some of them weren’t, but only 3 out of 10. The other 7 all had health insurance.
That means nearly ½ of every bankruptcy in this country was filed due to medical bills by people who had health insurance. Now stop and think about that.
How is this possible? It’s because most people didn’t understand their own insurance plans or what they covered. Yes, there is the deductible, and most people understand that, and there is the max out-of-pocket you have to cover, but there are also ‘internal limits’. And these ‘limits’ can be costly.
An internal limit simply limits the amount the insurance will pay for a given service. For example, if your hospital room costs you $1,000/day, and your insurance policy has a limit of $400, you have to cover $600/day. And this is above and beyond your deductible and your maximum out of pocket. Internal limits aren’t ‘limited’ to hospital rooms – they can be applied to anything the policy covers.
And not all plans cover all medical services.
Between the deductible, the max out of pocket, the internal limits, and services that simply aren’t covered, your bill can add up fast.
Understand your Insurance
Understanding your health insurance is critical to BOTH your health and your financial future. In fact, getting the right insurance is, arguably, the most important financial action you can take. The ACA takes care of a lot of that, by forcing you to buy insurance that covers ten essential benefits. But, for many it’s still cheaper just to pay the tax penalty rather than to pay the premium. Many will choose to do this.
But we need to re-think that. Statistics tell us the most important first step in building a solid financial plan is to make the right decision about health insurance. And it’s not just a little more important – it’s many times more important than any other cause of bankruptcy. It’s not just an 800-lb Gorilla – it’s a potentially rampaging, saliva-dripping, rabid, 800-lb mountain of financial destruction. Folks, it’s a bad thing. It’s a really bad thing.
So, since the ACA forces folks to buy insurance, and it forces them to get a broad range of coverages, isn’t it a good thing? Nice try, but you’re not going to make me go there. I’ll stay neutral on that one, on the record at least. (But get me off the record, and you might get an earful!) But helping to slow the rash of bankruptcies was not a bad idea. (Bankruptcies did slow, by the way, on their own without the ACA, although they are still fairly high.)
So what’s the takeaway here? For us as individuals, we need to understand that maintaining health insurance is one of, if not, arguably, the most important financial decisions we can make. If it comes down to a choice of buying health insurance or just paying the fine, better think twice.