Medical debt is a growing cause of bankruptcy

As unemployment persists in Georgia and throughout much of the United States, millions of people are now dealing with the long-term loss of their health insurance. Although the federal COBRA program allows the newly unemployed to continue receiving health care coverage, those premiums are often too high for those without a steady income. And as health care costs continue to rise, even people who are employed are having trouble paying higher insurance premiums and deductibles.

As a result of the high unemployment rate and continuing increase in health care costs, medical debt has become an increasingly common reason behind bankruptcy filings in the U.S. According to CredAbility, an Atlanta-based national credit counseling agency, about 20 percent of people who have sought financial counseling for bankruptcy in 2010 and 2011 cited medical debt as the main cause of their decision to file for bankruptcy.

Although that may not seem like much, it is a significant increase from the 12 percent of people who were forced to file for bankruptcy due to unmanageable medical bills in 2008 and 2009.

According to Michelle Jones of CredAbility, one reason for the increase in medical debt bankruptcies is patients’ unwillingness to defer on medical bills. Instead, people will take out credit cards, often with high interest rates, and use those to make medical bill payments. While this provides a short-term solution, it may result in greater long-term financial difficulties. This is especially common among people who need ongoing health care, as many medical facilities will not provide continuing treatment if patients are not current on their bills.

In addition, clinics and hospitals are quick to refer patients with outstanding bills to debt collection agencies, often resulting in a bankruptcy filing.

Source: New York Times, “Medical Debt Cited More Often in Bankruptcies,” Ann Carrns, Aug. 18, 2011