Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Would paying for a Honda Civic drive you to Bankruptcy?

with one comment

If the answer is “yes”, then this latest study on medical bankruptcies applies to you.

The authors argue that medical bills as low as 10% of your pretax may be driving up to 62% of all bankruptcies.  Is that personal financial mismanagement or is that a sign of a broken healthcare system?

Out of pocket medical expenditures averaged less than $18,000 for insured families.  This is less than the interest owed on a $300,000 mortgage at 6%.  It is also larger than most out of pocket maximums associated with health plans I’m familiar with, although you could accrue that much over multiple years of exposure.

I suspect that what is going on here is that many of these individuals have had a significant non-medical financial shock and they are loading as many medical bills into their bankruptcy filings as possible, as they should.  The researchers are going back in after the fact and citing the medical bills as the proximate cause for the filing.

Another subset may have had a disabling injury, forcing them to quit their jobs.  I would rank disability insurance as the second most important form of insurance you can have (next to life insurance).  A 30 year old who becomes disabled loses the vast majority of her lifetime earning power, worth millions.  That dwarfs the cost of a Honda Civic and also dwarfs the risk associated with all but the absolute rarest and most extreme medical expenses.

Advertisements

Written by Victor

June 4, 2009 at 3:21 pm

One Response

Subscribe to comments with RSS.


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: