Home

Posts Tagged ‘medical debt’

Monday, September 19th, 2011

Changes on the Way for Credit Scores?

Though the Fair Isaac Corporation (FICO) introduced a new credit-scoring model more than three years ago, lending institutions are only now beginning to adopt it. According to a new report on Credit.com, the delay could be bad news for consumers hoping to apply for credit or loans.

The new model, called FICO 8, was ready for adoption in 2008 and rolled out in 2009. But, aside from Citibank, which adopted the new scoring method earlier this summer, the major lenders in the U.S. (including Bank of America, Wells Fargo, Chase, Fannie Mae and Freddie Mac) have yet to change their scoring techniques.

FICO Background

The FICO credit score is generally heralded as the gold standard in the lending industry. This score ranges from 300 to 850 and determines what kind of rates consumers get on loans (and whether they qualify for loans at all).

Negative credit actions (including defaulting on loans, filing for bankruptcy, going into foreclosure, etc.) lower a credit score; positive credit actions (paying bills on time, having a low credit usage ratio, etc.) raise it.

Is the Delay Hurting Borrowers?

Sources note that FICO 8 introduces scoring tools that could give consumers a better chance of qualifying for loans, including:

  • Less emphasis on unpaid debts under $100. Many of those debts, it seems, might be from the doctor. According to the Commonwealth Fund, 14 million Americans are currently fighting medical bills. And the FTC notes that half of all debts in collections are medical.
  • More consumer categories. Rather than dividing consumers into 10 groups, FICO 8 carves out 16, meaning that scoring tools will be able to more accurately predict consumer behavior.
  • Fairer comparisons. The old credit-scoring model (still currently in use in much of the country) essentially had one ruler for every lender. The new model allows lenders to compare someone with, say, a short credit history to others with histories of a similar length. This will help provide a more accurate picture of whether or not someone is a good credit risk compared to her peers.
  • Credit utilization will count more. To balance the effect of counting small unpaid debts less, high credit utilization ratios will hurt a score more significantly (i.e. those with maxed out on cards will suffer).

Possible Reasons for Delay

According to Credit.com, the delay in adoption of FICO 8 might be related to a number of factors. Fannie and Freddie (responsible for underwriting most mortgages in the U.S.), for example, are currently facing opposition in Congress to the government support they enjoy. After suffering major losses in the mortgage meltdown, they may be more focused on staying afloat than changing the way they do business.

As for other major lenders, the outlook isn’t much better. Seventeen major banks are now facing lawsuits regarding toxic assets they sold to investors during the mortgage boom. Depending how the suits play out, those institutions could owe serious money that they may or may not have. Considering those conditions, a non-essential policy change may seem frivolous.

Tags: , , , ,
Posted in Your Credit Score | No Comments »

Monday, July 18th, 2011

Can Caring for Parents Lead to Medical Bankruptcy?

These days, the rising cost of health care is a serious worry for many Americans. Bankruptcy filers often cite high medical bills as one factor that led them to seek protection, leading analysts to coin the phrase “medical bankruptcy.”

But one less-discussed phenomenon involving medical debt and bankruptcy revolves around this issue of elder care. The truth is, though, that taking care of aging parents or family members may lead to bankruptcy. Here’s a look at the problem and some methods to prevent it.

The Cost of Aging

Various studies have shown that long-term care for older people can be shockingly expensive. Sources report that:

  • After Alzheimer’s diagnosis, the average patient spends $400,000 for medical care.
  • On average, nursing homes come with a price tag of $7,000 per month.
  • Assisted living facilities cost a monthly $3,300 on average.
  • An average couple that retires at 65 in 2011 can expect to fork over $230,000 in medical costs during the course of their retirement.
  • As many as 65 percent of people over 65 will need long-term care at some time in the future and there’s a 75 percent chance that one member of a retirement-age couple will.

Because many people don’t save enough money to cover these expenses, the burden of providing long-term care may fall to other family members (particularly those who are still working).

Protecting Yourself & Your Loved Ones from Medical Debt

Filing for bankruptcy can provide relief from medical debt. But if you take some precautionary measures, you may be able to keep yourself out of bankruptcy court while still keeping your aging family members in good health.

Insiders recommend taking the following steps:

  • Buy long-term care insurance. This is a kind of health insurance exclusively for those who end up needing long-term care. The earlier in life you begin paying into the system, the lower rates you’re likely to get. Sources recommend doing some research on long-term care insurers, though: the costs and services vary widely and you can save yourself money by getting insurance tailored to your likely needs.
  • Understand the Medicaid option. While retirees have access to Medicare, that program doesn’t cover long-term custodial care. It is possible to qualify for Medicaid as a retiree, though, a program that does offer long-term care. Talk with a healthcare professional about your potential to qualify.
  • Don’t drain your retirement account early. During tight financial times, the temptation to drain a retirement account or 401(k) may be hard to resist. But it’s important to remember that using money from those accounts before they’ve “ripened” will result in serious tax penalties. Plus, the money can’t be replaced. Further, retirement accounts are protected in bankruptcy court, meaning that even if you file for bankruptcy, you’ll get to hang on to your future funds.

Medical costs can be frustratingly high, especially for those who need intensive or persistent care. Taking action while you’re healthy can save you serious money when you get sick.

Tags: , , , ,
Posted in Economic News: How Are We Doing?, Finance 101: Secure Your Future | No Comments »

Monday, May 9th, 2011

Study: More Drug Manufacturers Cutting Deals to Keep Prices High

The Federal Trade Commission announced this week that according to a recent study, there has been an increase in the number of drug companies engaging in pay-to-delay deals with generic drug producers.

The FTC has denounced the actions, and with good reason: medical costs are one major contributor to many personal bankruptcy filings of U.S. citizens. So how might these types of deals affect you and your family?

  • Background information: Once a drug company patents a certain drug, generic producers of drugs of similar chemical composition may file a challenge to the patent, with the goal of being able to produce a chemically similar (or identical) version to sell more cheaply.
  • How the deals work: If these challenges went to court, it’s possible that they would result in judges ruling in favor of the generic producers. In order to avoid that outcome (and thus secure the market for themselves for a longer period of time), some brand-name drug manufacturers settle out of court with generic drug producers.
  • Who makes money: Most settlements include an agreement that the generic manufacturer will not produce the generic version of the drug until a certain date; some settlements include a financial incentive from the brand-name manufacturer to lengthen the delay period (i.e. the brand-name manufacturer pays the generic manufacturer to delay its release of its cheaper product). The FTC found that in cases involving a payment, generic drug release waiting periods increased by an average of 17 months.
  • Who loses money: The FTC notes that in 2010, 22 name-brand drugs were targeted in pay-to-delay deals. The total number of such deals reportedly jumped from 19 in 2009 to 31 in 2010 (an increase of more than 60 percent).
  • What it costs us: The total dollar toll these deals have taken on Americans comes to $3.5 billion per year, according to FTC estimates. The difference comes from the fact that generic drugs can cost anywhere from 20 to 90 percent less than their name-brand counterparts. That’s a lot of money people could be putting toward paying down mortgages or credit card debt.

Are Generic Drug-Delay Deals Legal?

Anyone familiar with antitrust laws may wonder whether deals to delay competitive drugs are even legal in the U.S. The answer is a little murky. It seems that the FTC has filed a number of lawsuits against pay-to-delay agreements and has demonstrated its support of bills in Congress designed to eliminate such activity among drug manufacturers.

How can you take action? While there may not be much you can do about the problem of pay-for-delay agreements, if you’re worried about paying your medical bills, you can (and should) ask your physician whether generic versions are available any time you need medicine.

Tags: , , , ,
Posted in Finance 101: Secure Your Future, The Law and Your Money | 1 Comment »

Saturday, April 24th, 2010

Bankruptcy Filers Fight Morality Stigma

Despite the vast body of research that indicates otherwise, many Americans still think of filing for bankruptcy as a sign of personal or moral weakness, rather than a needed safety net for people who truly cannot afford their bills.

An article from the Minneapolis Star-Tribune does an excellent job of addressing this common misconception about the protection bankruptcy offers. The writer was inspired to action, it seems, by a columnist from another publication who cited bankruptcy as proof of moral weakness.

His response includes these important facts about bankruptcy that reinforce its role in the U.S. economic system:

  • Medical costs contribute to many bankruptcy filings. In fact, a study conducted in 2007 (link below) found that more than 60 percent of Americans who file for bankruptcy do so because of excessive medical bills. This is no surprise to anyone who has had difficulty getting health coverage or being able to afford insurance.
  • Job loss and divorce play a huge role. Along with medical costs, these two factors account for the vast majority (about 90 percent) of all bankruptcy filings. And, if the current economy has done anything, it has reminded us how devastating job loss can be.
  • People who file really need help. The article notes that the average Chapter 7 bankruptcy filer has an income of only $20,000 per year, which isn’t exactly a lot of money, and can easily disappear when an unexpected financial burden hits.
  • Credit card companies are not your friends. Many people who file for bankruptcy have some or all of their unsecured debt discharged by the court—this debt often includes credit card bills. And, with high interest rates, fines and fees that these companies rake in, it’s hard to feel sorry for their loss of income.

The bottom line here is that bankruptcy exists to protect those who truly need its protections. Without it, the American economy would likely not flourish with as much innovation as it does today—thanks to the security that bankruptcy provides, entrepreneurs can take risks that they might not otherwise have.

Tags: , ,
Posted in The Truth about Bankruptcy | No Comments »

Friday, February 19th, 2010

Medical Bills: Beware of Discount Health Coverage Scams

As healthcare costs continue to skyrocket in comparison to household earnings, many Americans are looking for ways to save on medical bills. However, not every deal is worth pursuing, and the Coalition Against Insurance Fraud reports some healthcare scams currently plaguing the nation.

Background

Because health insurance in the U.S. is most commonly linked to jobs, a high rate of unemployment means higher numbers of people are going without health coverage. And, thanks to lowered income for many households, affording healthcare can be a huge stumbling block. Healthcare costs are also one of the largest drivers in bankruptcy filings, according to studies.

According to sources, some companies are apparently taking advantage of vulnerable Americans by offering discount health products, which may not be a very good bargain.

Discount Plans vs. Health Insurance

Health insurance, as many people know, works like this: you pay a certain amount of money each month (called a premium) and when you need access to medical care, you only pay a portion of the price (called a deductible) because you’ve insured yourself against doing so.

Discount plans, on the other hand, offer discounts on the normal full price of medical services. They are usually restricted to specific caregivers and specific medical facilities. After receiving consumer complaints about some discount plans, investigators reportedly found that discount plans tended to:

  • Overstate benefits: Advertisements for some plans misled consumers with claims about potential savings. For example, a plan might advertise itself as offering savings up to 60 percent, but provide a 60 percent discount on only one service.
  • Offer insufficient savings: Those with chronic health problems or who make frequent doctor’s visits may see little or no financial benefits from these plans.
  • Provide incorrect information: Some plans apparently guaranteed access to medical professionals who were no longer affiliated with the plan.

Making the Decision

If you don’t have access to or cannot afford health insurance, you may benefit from signing up for a discount plan – the important thing to do is research the plan before committing to it.

These precautionary steps to anyone considering such a plan:

  • Read everything. Look at the forms you’d be required to fill out and scrutinize the fine print. Make sure you know exactly what the plan includes – and leaves out.
  • Don’t jump the gun. Before opting out of another insurance plan, make sure the new plan you’re looking into will offer the kind of protection you need.
  • Make some calls. Ask for the list of physicians that you’d have access to and call to make sure they’re still participating.

Remember: commercials tell you only what they want you to know so do a little digging before choosing any new medical product.

Additional Resources

Medical Bills and Bankruptcy

Tags: , , ,
Posted in Finance 101: Secure Your Future | 1 Comment »

Wednesday, July 1st, 2009

Medical Bankruptcy: Devastating Effects of Medical Debt

DrSteveB over on Daily Kos has a sobering look at that dramatic ways in which uncontrollable medical bills can change a life.

DrSteve gives us the tale of a man in Texas who was living his dream - married, owned his own company, had health insurance - until a car accident radically altered his life and left him homeless.

The medical bills quickly blew past what his insurance would cover.  The owner and driver of the other truck did not have insurance, like 10-20% of vehicle owners despite the mandate to buy auto insurance, so Mr. Benson and his insurance company were unable to go after that source.

I've been doing some research on medical bankruptcy lately, and this story was heartbreaking. Sadly, it shares much in common with many of the people who run into serious financial problems following an illness or injury.

Medical bills can quickly become overwhelming, even for the insured. If you need serious health care, the financial fallout is often more than just another bill.

Many people lose significant work time because of illness or injury. The new bills and loss of income may put strains on their mortgage or lead to an increased reliance on credit cards, which can also get out of hand quickly.

Fortunately, DrSteve's story has a happy ending:

Eventually, he wound up in a shelter, and eventually he was able to put his professional chef skills to work in the "soup kitchen."  From that he has worked his way back to sobriety, fulltime employment and housing.

If you're facing severe medical debt, don't wait to take action. If you need to get your debt under control, know that help is available.

Learn about the filing bankruptcy choice.

Tags: , ,
Posted in The Truth about Bankruptcy | No Comments »

Thursday, June 4th, 2009

Medical Bills and Bankruptcy

The LA Times reports today on a Harvard study that shows medical bills played a role in 62 percent of all bankruptcies filed in 2007, a seven percent increase compared with 2001.

What's more, many of the people filing bankruptcy due to overwhelming medical bills had health insurance. From the LAT:

Medical insurance isn't much help, either. About 78% of bankruptcy filers burdened by healthcare expenses were insured, according to the survey, to be published in the August issue of the American Journal of Medicine.

"Health insurance is not a guarantee that illness won't bankrupt you," said Steffie Woolhandler, one of the authors, a practicing physician and an associate medical professor at Harvard.

It's not just high medical bills that contribute to bankruptcy, but also the lost wages and work time that an injury or illness can cause.

There is sometimes a stigma assocaited with filing bankruptcy, the idea that bankruptcy filers are irresponsible with their money. But this study shows:

Most people who filed medical-related bankruptcies "were solidly middle class before financial disaster hit," the study says. Two-thirds were homeowners, and most had gone to college.

Even if you plan for the unexpected, a sudden injury or illness can hit hard. Lost work time can cause your income to dry up, while extremely high medical bills turn a small, manageable amount of debt into an out-of-control giant.

Filing Bankruptcy and Medical Bills

For bankruptcy purposes, medical bills are considered unsecured debt.

This type of debt may be entirely discharged in a Chapter 7 bankruptcy filing.

In a Chapter 13 filing, your medical bills could be ordered and combined with other debts, and possibly reduced, in a bankruptcy trust.

Tags: , , , , ,
Posted in The Truth about Bankruptcy | No Comments »

Wednesday, January 17th, 2007

New Study Ties Credit Card Debt to Medical Bills

Recent studies of bankruptcy petitioners have shown that medical expenses and associated lost income were a major factor in their financial problems, and consumer credit information from the federal government has confirmed that medical expenses are a primary reason for consumer borrowing, so it should come as no surprise that those without medical insurance and those who have faced major medical expenses over the past few years tend to have higher credit card debt.

A study just released by Demos reveals some interesting numbers:

  • Low and middle income households with a major medical expense in the past three years carry an average of 45.9 percent more credit card debt than similarly situated households without a recent major medical expense.
  • The average credit card debt for families without medical insurance is 32.2% higher than that of families with medical insurance.

Although the evidence has been clear from the beginning that the vast majority of bankruptcy filings were triggered by unforeseen trauma like job loss, serious illness, uninsured medical expenses, divorce, and death in the family, this connection between medical bills and consumer debt puts a new perspective on even those bankruptcy petitioners who list primarily credit card debt.  Credit card debt incurred to pay medical expenses hardly correlates with the picture of the "deadbeat" bankruptcy petitioner "running up" credit card bills irresponsibly and then shirking his responsibility.

Tags: , , , , , , ,
Posted in Economic News: How Are We Doing? | No Comments »