We usually think of ourselves as being pretty well covered when it comes to health insurance. The reality is that this is still the biggest financial risk we face.
We work hard to look to ensure our financial security and our future is protected, and this is well evidenced by how much money we spend on insurance. We insure our homes from loss, our cars from accidents, liability insurance in case we’re sued, life insurance to protect our loved ones financially in case we die, creditor insurance to protect our credit if we lose our jobs or become disabled, and we even insure things like appliances in case they break.
We also have medical insurance in case we get sick, but as it turns out, even if we have good coverage, there are some real risks present with this that aren’t addressed all that well generally, and this can lead to some pretty painful financial events as well as physical ones.
Health insurance is pretty expensive compared to other insurances, and the costs of medical care just keeps rising, well outpacing the rising costs of other expenses, and more notably, increases in income. Average medical costs per year for a family of four is now over $28,000, and is going up by about $100 a month.
$28,000 a year is a lot of money relative to what people make on average, although a lot of this is hidden in our compensation package, where we essentially pay all this money in premiums collected by our employers and are paid out what is left.
Employer paid contributions is actually an ingenious way to hide all this money being spent, and most people don’t have much of a clue about how much they spend on health insurance, because they think that it is free or provided out of the good of their employer’s hearts.
It should be rather obvious to us when we think about this a little that this is money that could have been paid to us if not for these expensive premiums, and that this coverage is just another part of our compensation package.
Seeing something go up $100 a month should also alarm us, as this is a big price increase dollar wise for sure. We may complain and even be alarmed when the cost of something goes up by $100 in a month, but when this happens each and every month, there is a lot more reason for concern.
We Bear These Rising Costs One Way or Another
There are limitations on how much our employers can contribute here in the face of rising costs, and what happens is that the coverage becomes more diluted over time, passing on more of these costs to us directly in the form of out of pocket expenses. People complain a lot about these expenses but what they also need to be doing is looking at the total cost of this insurance to even get an idea of the seriousness of all of this and how this is placing us at greater and greater risk of finding ourselves in a bad place, either not being able to afford care we need or seeing the costs break us.
It should not surprise us that the majority of personal bankruptcies are caused by health expenses, and about 70% of bankruptcies have this to blame for them. We might think that a lot of these people didn’t have health insurance, and not being insured is a sure way to expose yourself to bankruptcy risk, but a lot of these people are insured and go down anyway.
Professor David Himmelstein of the City University of New York is sounding the alarm for us, and isn’t just looking to alert those who do not have adequate coverage, or what most would consider to be adequate, he’s out to warn those who are covered and are also otherwise fairly well off by most people’s standards.
Professor Himmelstein points out that “for middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments, and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss, just when families need it the most.”
We often struggle with even the small stuff, like paying part of the cost of everyday medical costs, and a lot of people don’t even have enough savings to pay for these rather minor expenses. 40% of Americans don’t even have enough savings to pay for a $400 deductible. They may be able to borrow it, but this just adds to the pile of other debt that many people already have, where often times, a bad situation has been made even worse.
We Need to Be Paying Close Attention to All of This
People don’t really put much effort, if any, in saving for health care expenses, because they have been conditioned to think that since they are covered, these things aren’t something you need to really worry about too much. Since health care expenses are often unplanned, they get less attention than expenses we already know about, and are therefore easier to neglect.
There are some things that we just can’t adequately plan for, losing our job and our coverage for instance, or serious health events whose cost simply exceeds our capacity to pay for. Our financial health is at risk for serious illness as well, the ones that would be reasonable to expect that they would lead to bankruptcy, but a lot of people are exposed to this risk through a series of lesser crises if they do not prepare themselves adequately for them.
What we need to do is to ensure that we are taking an honest assessment of the risks that medical expenses involve to us, and give the management of these risks the attention they deserve.
We tend to save quite a bit for retirement, and together with purchasing a decent amount of insurance, are the only things that we manage to get decently right overall. Even so, our retirement funds tend to be underfunded, and we are also not always adequately insured, especially with life insurance.
On the other end of the spectrum, health insurance is probably the most neglected facet of our personal financial plan, and given that the risks here are pretty high, you would think that this would be paid attention to a lot more. If we find it difficult to save, as most people do, we are going to need to re-assess our priorities and direct a more appropriate amount towards protecting ourselves from these issues, something we do not value very highly.
Our best efforts still may not be enough, and health care spending is an insidious beast that just keeps growing like a gigantic blob from a sci-fi horror movie. With such a serious threat, we at least need to recognize that this can be a problem before we can ever address it.
While catastrophic illness may bring us down, we should be looking to steady ourselves on our feet so that the less significant stuff doesn’t put us on the ground as well, and this does require a real commitment, and not just pretending we don’t have a problem here.