How to Protect Yourself From Bankruptcy and Medical-Bill Disaster

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It’s a fact of life: Everyone gets sick at times. The scary thing is that illness or medical bills cause nearly two-thirds of all bankruptcies, according to a study from Harvard Medical School. And in 78 percent of cases, the person goes bankrupt despite having health insurance. “Typically, it was a relatively brief illness that led to bankruptcy,” says study co-author David U. Himmelstein, MD, associate professor of medicine at Harvard Medical School. Here’s how to protect yourself.

While you’re well …
Never let your policy lapse.
It’s tempting to forgo insurance premium payments if you’re jobless. But “not having insurance is as risky as not wearing your seat belt,” warns Atlanta financial planner Mary Claire Allvine, co-author of The 7 Most Important Money Decisions You’ll Ever Make. “It takes only one accident or illness to financially ruin you.” Thankfully, the federal government will, in most cases, pay 65 percent of your COBRA bill for nine months if you’re laid off this year.

Budget for health care like you do for gas.
Factor your annual deductible, doctor-visit fees, and drug co-pays into your budget, Allvine says. Divide what you pay in a typical year by 12 to see what to save monthly. And use your employer’s flexible-spending benefit, so you can pay for uncovered medical expenses with pretax dollars.

Get to know your policy.
You’re more likely to get claims covered when you strictly follow your insurer’s requirements, says Erin Moaratty, chief special-projects officer at the nonprofit Patient Advocate Foundation in Newport News, Virginia. Read your policy thoroughly to see what the rules are for seeing out-of-network doctors, getting preapproval for procedures, etc.

Next page: Check your disability coverage.