Can You Insure Your Way Out of Bankruptcy?

In the United States, one of the only developed countries in the world without universal healthcare coverage, about 8% of the population is uninsured. That equates to roughly 27 million people.

Meanwhile, 23% of working-age adults are considered underinsured. This is the result of high out-of-pocket costs and deductibles that put a significant strain on their incomes. Many consider the possibility of filing for bankruptcy.

If you’re among this sizable group who find it difficult to afford even the most basic healthcare, you may be wondering if you can insure your way out of bankruptcy. But you may want to shift your perspective instead.

The Looming Problem of Medical Debt

If you have no health insurance, you more than likely have some form of medical debt. Given the high cost of healthcare, it could be extensive. For those with limited financial assets, even a small but unexpected medical expense can be a strain. The even scarier part is that you’re just one illness, injury, or emergency away from medical debt that could render you completely financially underwater.

Meanwhile, if you are underinsured, those aforementioned high deductibles and what you have to pay out of pocket each time you receive care can also leave you with significant medical debt that never seems to shrink. In addition, if you have more complex health issues that require ongoing care, those debts are going to keep mounting and if you have an illness or injury that has deemed you unable to work, you may be experiencing the double whammy of lost income.

It should come as no surprise that medical debt increases with age. If you’re middle-aged, you’re the most likely to have medical debt. In fact, 10% of adults ages 50 to 64 report having medical debt. That number drops to 6% for those 65 to 79 who have reached Medicare age.

Medical debt can be paralyzing. Perhaps you find yourself cutting spending on food, utilities, or rent in an attempt to pay it off. You may have even drained your emergency reserves to settle these bills, but to no avail. You may even be skipping important routine medical visits because they are just too cost-prohibitive.

It shouldn’t be this hard.

So Can You Insure Your Way Out of Bankruptcy?

Well, yes and no. The bigger question is, what’s the better solution here?

So if you’re uninsured, purchasing catastrophic insurance will cap your annual out-of-pocket maximum. That means that those medical bills would stop piling up past a certain threshold. When paired with short-term disability, which covers a portion of your income if illness or injury prevents you from working while recovering, you wouldn’t need to worry about being able to pay routine living expenses.

There are some serious limits to this “solution” though. First, catastrophic coverage is only available to people under 30. So, if you’re older than that, you’ll need to submit an application to see if you qualify for either an affordability exemption or a hardship exemption.

But is it worth the effort?

To qualify for an affordability exemption, the lowest-priced coverage available to you would have to cost more than 8.09% of your household income. Though honestly, a healthcare plan that costs as much as 6-8% of your income is still not going to be a great solution or do much to put a dent in your medical debt.

Meanwhile, there’s an extensive list of hardships that may help you qualify. If you’re homeless, facing eviction or foreclosure, experienced a fire, flood, or other disaster that damaged your property, or have debilitating medical debt, you may also qualify. Yet, even with catastrophic coverage and short-term disability, you won’t be freed of high deductibles and out-of-pocket expenses.

Filing for bankruptcy can also be considered a hardship, though. And this is not an unusual reason for those who are underinsured or without health insurance and in deep medical debt to begin the filing process. A Chapter 7 bankruptcy will wipe out that medical debt and give you a fresh financial start. Plus, filing for bankruptcy no longer has the stigma it once did. It could be the quickest and most effective way to liberate yourself from debilitating medical debt so you can start living your life again. 

Break Free with a Chapter 7 Bankruptcy

No matter how insurmountable your medical debt may seem, there’s no need to try to insure your way out of bankruptcy. Filing for Chapter 7 bankruptcy with the experienced bankruptcy attorneys at Gold, Lange, Majoros, and Smalarz is going to give you the best chance to get back on your feet.

During your free initial consultation, we’ll discuss your individual situation and fully explain the process of filing for Chapter 7 bankruptcy to get rid of that stifling medical debt.

So, if you’re considering starting the process, contact us today. Bankruptcy is all we do. And our goal is to help you get the fresh financial start you deserve.