Do people really carry this much debt on their credit cards? (1 Viewer)

[JoeyR]

Thanks for proving the point of my previous post

 

[DaveF]

So what's the conclusion? Are people bankrupted because of catastropic health event? Or is it because they simply didn't have enough insurance? Should it just be social norm for everyone to spend $2400+ annually and upwards of $5000 in deductibles, which is ~20% of the gross income for a median American, in case of the unlikely?

I'm not just asking idly. I'm finally getting to some financial planning, and this weekend plan to start reviewing my 401k, short- and long-term disability insurance, life insurance for my wife, etc. I met with a financial planner to research outside help: they are quite expensive and it's hard to determine the benefit of such services.

Some things seem simple: during recent catastrophes, the news was that many people lacked obvious home insurance for their region. The financial aftermath, I think, would have been lessened if people and busineses had normal insurance for the natural disasters in their area. And yet, to expect people to have every possible insurance for all calamities seems silly: they'd be insured out of house and home by the cost.

It may be that it's all quite simple: a person with a good advisor could choose good options that are affordable and appropriate and cover even unlikely events. But finding that good advisor, and of working through the morass of options to find the good balance is still complicated and daunting for many. And so it's easy to put it off until too late.

 

[John Dirk]

As alluded above, I don't know that I can agree with this. I would like to see some empirical data supporting this position, as it is not consistent with what I read and see everyday. Personal financial responsibility won't always prepare you for a disaster; That's one of the reasons it's called a disaster, but by definition, disasters should be relatively rare.

Just my opinion.

John

 

[Brian Perry]

To look at it another way, is it unreasonable to expect someone to pay for services that they are using? We don't think of spending money on DVDs, Starbucks, restaurants, car washes, nice clothes, etc. Why shouldn't we expect people to foot some of the bill for non-catastrophic health care costs? Where is it written that someone is entitled to a free hip replacement? Or a free root canal? Part of the reason health care costs are sky high is that most people don't act like consumers when everything is covered by insurance.

If someone has $200k+ in medical expenses, I think it is very reasonable to ask them to pay the first $5k. Yes, it hurts if your income is modest, but is bankruptcy a better alternative?

 

[Eric_L]

most people don't have $2000+ in annual medical expenses. The point of insurance is to kick in when there is a large unexpected loss - not to cover your every-day expenses. People understand this with things like car insurance, but the point is completely lost on medical insurance.

 

[Carl Miller]

Certainly this is one reason. Sadly, ignorance is another. Lots of people don't know there are supplemental plans. Some don't even know what their plans actually cover. The policy books are so thick, how many people read them?

But there are other reasons...the classic "guy gets fired, loses health insurance and gets diagnosed with cancer a month later" story. Insurance companies ditch customers midway through cancer battles, employers wrongfully terminate employees who are sick. Insurance companies refusing coverage of certain claims. Hospital and doctors plumping up bills with non-judicious charges....My father, for example, was billed thousands of dollars for an orthopedic "consultation and exam" 3 days before he died, while he was terminal and in hospice care.

What that guy did was probably a good idea for him, but it doesn't suit everyone.

 

[Brian Perry]

Ideally there would be a way to provide a safety net for those instances that are truly unexpected and unlucky. The problem is when you make something cheap, universal, and without any strings attached, it is almost always abused.

 

[BrianW]

Exactly. Life itself is a gamble. How much do you sacrifice today to counter the consequences of an unforeseen future event? How big of a disaster should you plan for? If you're out of work for a few months, do you go without medical insurance for your family and hope for the best? Or do plan for disaster, cash in some of your 401(k) stash, thereby cutting in to your ability to take care of yourself during retirement? What if something then happens during retirement, when that money (plus 35 years' interest) could have come in handy? Remember, at the time you must make this decision, you have no idea how long you're going to be unemployed.


Yeah, I know. If I had planned well enough, I would have had plenty of cash put away for insurance premiums in the event of long-term unemployment. Unfortunately, that kind of planning requires a level of funding that would preclude the need for planning in the first place.


If you've been lucky in life, thank your lucky stars. Be grateful. But don't lump those whose lives are visited by disaster with those who simply can't live within their means. Good luck is a lot like good health: it's something you have only until you don't.

 

[Eric_L]

The first two are incorrect in that they cannot be legally done. The last is correct only in that they can only legally refuse claims outside of the originally agreed upon terms.

Is insurance perfect? Hell no! The medical business has become warped and contorted by people with agendas - most often having little to do with medicine or business. However, distortions of reality do not lead to constructive solutions - in fact they have potential to make a bad problem worse - so it is important for people to know the facts from the myths.

As far as what I think is bad? IMHO certain practices in medical blling need to be banned - for example; negotiated rates. That is total BS. (that is where the standard rate for a procedure would cost, say, $700 but because my insurance company has negotiated with the provider I am billed $45 - Yes it can be that much diffrerent) Imagine if Wallmart charged you $80 for a gallon of milk because you wanted to pay cash instead of with Visa? (Visa having negotiated lower prices) It is absolutely horrid and should not be accepteable.
I also think the co-pay PPO/HMO plans should go the way of the dodo bird. Imagine Walmart again, except this time I am charged only $20 no matter how many items I put in the cart. Am I concerned with cost? Do I compare price between items? NOT! So prices rise and rise and rise while insureds never think twice about value for service or product... Finally the insurance company has to put their foot down - not on the insured, but on the provider.. Bass-ackwards!

These are two examples of the weak state of medicine in America. Worst of all - the root of these problems began with people who were trying to 'fix' the 'high' cost of medicine (which has only gotten higher faster)

Do we need the government to take over medicine? Hell no; look how well they handle... umm.. how good they are at.. er... umm.. HELL NO! - but we do need government and business to step back from their agendas and let a structured free market operate the way it is supposed to; Fair price for fair service with no 3rd part interference beyond providing the basic structure for business. The medical business needs an overhaul - and it is EVERYBODYS fault.

 

[Dennis Nicholls]

And with HIPAA, which takes over when COBRA leaves off.

See Health Insurance Portability and Accountability Act - Wikipedia, the free encyclopedia for an outline.

HIPAA is what the Clinton administration got through Congress after Hillarycare bombed out.

 

[BrianW]

That doesn't stop them from doing it. And fighting them takes more resources than people of even above-average means have.

You need to get out of the classroom and into the lab. Your theory sounds really great, but it just doesn't work in practice. Your proposed insurance reforms are pretty sound, though.

 

[Brian Perry]

There are rules of thumb, but of course things can happen to thwart the best laid plans. I think a good start would be:

1. A six-month emergency fund in case of job loss.
2. A term life insurance policy with a value of 10x your income with 20-year level premiums (assuming you have dependents).
3. A fixed-rate mortgage payment no bigger than 30% of your gross monthly income.
4. A health insurance policy that pays 100% of costs above a set threshold such as 3k or 5k.
5. If your car is out of warranty, it's probably a good idea to set aside $100 or $200 per month for potential repairs. (If it's out of warranty you're probably done making payments, so make "half" payments to yourself to be used for inevitable repairs and maintenance.)

These are sacrifices but they also provide peace of mind.

 

[Carl Miller]

People getting fired, losing insurance and becoming ill happens to plenty of people. Sure, they can pick up Cobra, but can they pay for it? Don't assume they can.

Insurance companies ditching people midway through cancer battles also happens. Is it illegal? Yeah. That doesn't mean it doesn't happen.

Regarding refusing claims...This happens frequently with cancer patients, most especially patients with pancreatic cancer. Doctors descend upon cancer patients like vultures, all looking to get in on the billing frenzy. Have you ever had someone in your family with Pancreatic cancer? I hope not, but it works like this:

Cancer is discovered after it has spread to one or more parts of the body..Doctors find out theres a Pancreatic cancer patient who just entered room 11B, and they all head over to that room to see if the cancer has spread to their "area" of expertise. Every visit is a consult, every consult is a bill, and every one of those is carefully scrutizined by the insurance companies.

To be fair, this medical vulturing does not happen to the same degree at the elite hospitals, such as Sloan Kettering, Cedars Sinai etc, but it happens everywhere else, the worse the hospital is, the worse the vulturism is.

You may have the wherewithal to fight these bills...I know we did when it happened to my father during his cancer battle, but most people do not. The bulk of these unpaid bills end up the burden of the patient or patients family to contend with. Health insurance companies won't let you off the hook just because you tell them these services which were billed weren't necessary.....Oh no, they want a doctor to support your contention and you try getting one doctor to rat on another doctor. Good luck!

 

[Carl Miller]

Agreed. I still remember having hernia surgery done and charged to my credit card. I had no health insurance because I was new at the job and not eligible. I had maybe 2K in the bank which I chose to spend on a car, so I could get to work and keep the job which would give me health insurance 6 months later.

Then one day, after being on this new job for about 3 months, I sneezed and felt this big painful pop "down there". A sneeze gave me a hernia. A sneeze! Not lifting weights or pushing a car or moving furniture....A sneeze.

How do you plan for that?

 

[JoeyR]

Actually 2300 is pretty standard if not more

 

[Eric_L]

Not even close;
Health Insurance Portability: Consequences of Cobra
The average COBRA premium is about $400 per month.

Carl And Brian; making the claim 'they do anyway' is not very compelling. Maybe you have something beyond anecdotal evidence to add merit to this claim?

I don't see that as likely - breach of contract and bad-faith have very bad ramifications for insurance companies (and very good ramifications for attorneys who will work for a contingency) States insurance commissioners also can help get claims resolved before legal action becomes necessary.

"Watercooler" advice is usually best left at the watercooler. These are parts of the distortions I spoke of earlier which lead to bad legislation.

 

[BrianW]

And making the claim that "they don't, because that would be illegal" is even less compelling. Your assertion is based purely on legal theory, on no data whatsoever, anecdotal or otherwise. Remember, you're the one making a blanket assertion that requires only one example to refute. If you claim that "they don't", and I say "they did it to me", then your claim is refuted by my single example, even if it is anecdotal in nature. You may as well make the blanket assertion that "people simply don't get cancer", and then dismiss the claims of those who have cancer because their experiences are anecdotal.

Eric, I really, really, really wish I could live in your world where averages apply to everybody, and everybody abides by the rules. But I don't. And because I don't, I'm forced to make adjustments and endure difficulties that you simply don't seem to be able to comprehend.

 

[Bryan X]

We had experience with the unexpected a few years ago. In 2003 my wife (in her 30s) was diagnosed with cancer. Fortunately, she was covered not only by my insurance, but we had purchased insurance through her work too. So she was double covered. Other than a few $15 co-pays, we didn't pay a dime out of the medical costs she incurred-- which were obviously substantial. Nearly all of her initial treatment/exams were done at the small hospital where I work, so that was covered by my insurance at 100% with no deductible. Since her insurance was primary, anything hers didn't pay due to co-pay and deductible, mine paid. By the time she started having procedures/surgery done at other hospitals, her deductible and maximum out of pocket had been met-- thankfully by my insurance. Having good insurance coverage gave us one less thing to worry about during a very stressful time.

It will be 5 years ago this December, and so far she's doing well.

One thing we stupidly put off was life insurance. I was covered, but we hadn't bought any for her. After the diagnosis, I figured getting life insurance for her wouldn't be a viable option anymore. But a couple years ago, her employer offered insurance, no questions asked, regardless of medical history. Needless to say we jumped all over that.

I can't say that great planning had anything to do with our situation. We didn't expect any of this to happen. But we were fortunate enough to have good jobs that offered very good medical insurance at a very low premium. I still only pay $160 a month to cover our family through my employer.

Obviously every situation can't be planned for. I don't think anyone is arguing that. Stuff happens to the best of us. But I do think there is a difference between someone in debt because they got dumped on and the situation was beyond prudent financial preparedness (ie 6 mo. emergency fund, insurance, etc) versus someone who gets dumped on and had taken absolutely no steps to insulate themselves from even the tiniest hiccup life routinely throws at us (then of course there's all the gray in between).

 

[gene c]

I was recently laid off by my employer (in CA), but luckily I was able to walk across the street to a different (and profitable) division of the same corporation and get rehired. But all my benefits were cancelled and had to be re-instated. They were nice enough to waive the 90 probation period for medical coverage. Anyway, a week later the COBRA packet arrived. Cost for me was $742 a month. For a family of 4 it was around $2000 a month. That's a tough amount for someone who just lost a job. No matter how prepared you are.

But how much credit card debt should one carry before they start getting into risky territory? I know it depends on income but how about some opinions?

 

[BrianW]

Thanks for telling your story, Bryan. I'm glad your wife is doing well. I know the five-year mark is something of a milestone. My wife was diagnosed four years ago, and her prognosis is very good now.

My wife participates in the "Walk For The Cure" event every year in Dallas. The most recent event featured give-away items for people in different stages, from diagnosis to survivor. As my wife was accepting her muffin and water bottle from the "Survivor's Table", she heard one frustrated volunteer remark, "There are way too many survivors this year!"