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The Medical Insurance-Bankruptcy Pipeline

Open enrollment for medical insurance under the Affordable Care Act begins this week. The program has been, in many peoples’ view, a mixed blessing. On the one hand, it imposes financial penalties on most individuals who choose not to be insured. On the other, it has helped millions of people, who would otherwise have no access to adequate care, obtain the insurance they need.

More than 500,000 people in North Carolina are expected to sign up. As The News & Observer notes, most who do will benefit. The government offers subsidy programs to many who cannot afford ACA programs on their own, whereas uninsured individuals who incur unexpected medical expenses often find themselves in crippling debt. (Such debt, in fact, is the focus of this short article.) 

A few facts about medical debt

The statistics concerning medical debt in the United States are staggering:

  • Americans pay three times more for medical debt than they do for credit card debt and bank debt…combined.
  • Medical debt collectors take in more than $21 billion in an average year.
  • 31 percent of insured Americans took money out of retirement accounts or other long-term savings accounts to use for medical bills.
  • In a given year, 63 percent of Americans will receive a hospital bill that is more expensive than expected. A great many of these arise from the hospital’s billing errors.

Many readers will understand, on a personal level, just what these statistics mean. 

A path toward resolution

Though it was once stigmatized, more and more Americans are turning to bankruptcy as a solution. In fact, roughly 2 million people file for bankruptcy each year as a direct result of medical debt. Simply put, such filings are the quickest, most effective way to achieve firm financial footing.

Through a Chapter 7 filing, an individual is able to discharge their medical debts (as well as other debts) while still retaining their most important assets. Many find there is additional relief: after filing, creditors can no longer harass debtors. While bankruptcy isn’t the right choice for everybody—for some, debt restructuring holds more benefits—it is a useful tool that individuals may consider when they’re finding their bills too burdensome. The health insurance system isn’t perfect (indeed, far from it); bankruptcy offers individuals a path out of its web. 

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