It’s no secret that healthcare can be expensive in the U.S. Nevertheless, many people fail to plan for the financial impact of an illness or injury. Disability can cause people to go bankrupt, but disability insurance provides a critical safety net.
Health Insurance Leaves Out-of-Pocket Costs
Health insurance is supposed to cover healthcare costs, but it leaves many expenses uncovered. In addition to the monthly premium, you have to pay deductibles and copays or coinsurance. According to the KFF 2022 Employer Health Benefits Survey, the average coinsurance for hospital admissions is 20% and the average copay is $344.
And all of that’s assuming your claim is even covered. If you need to see a specialist who’s not in your network, you can end paying much more, possibly the entire cost. Even worse, according to InsuranceNewsNet, health insurance claim denials are becoming more common. Outrageous examples of denied claims include a pre-approved heart procedure.
Medical Bills and Lost Income Do a Double Whammy
When people experience a serious illness or injury, they often face medical bills while also dealing with lost income.
Under the Family and Medical Leave Act, eligible employees can take up to 12 weeks of job-protected leave if they experience a serious health condition that makes them unable to work. This federal law provides important protection to many workers, but it still leaves many people in a bad position.
- First, not all workers are even covered by the law since there are requirements based on the size of the employer and the length of employment.
- Second, the law only protects workers for 12 weeks, and many serious health conditions last for longer than three months.
- Third, and perhaps most importantly, the FMLA does not require employers to pay workers during FMLA leave. Even though workers have the legal right to take time off work, they might not have the financial ability to do so.
Bankruptcy Is a Real Risk
Bankrate’s 2023 Annual Emergency Savings Report found that only 43% of U.S. adults would use savings to cover an unexpected $1,000 expense, while 25% would use a credit card.
When people can keep working, they might be able to pay off that credit card debt in a reasonable amount of time. However, if they can’t work because of a disability, that debt may become an impossible burden.
Even people with emergency savings may be in a bad position. Let’s say you have emergency savings to cover six months’ worth of living expenses. That sounds good, and it certainly puts you ahead of many U.S. adults – but you shouldn’t relax just yet. If you have expensive medical bills on top of your regular expenses, your savings probably won’t cover six months – and your disability could last much longer.
According to the American Public Health Association, even with the Affordable Care Act in place, medical issues are still a common cause of bankruptcy. In fact, CNBC says 66.5% of all bankruptcies are tied to medical issues.
Disability Insurance Can Prevent Financial Disaster
Health insurance is not enough to protect workers from medical bankruptcy, but financial protection is available.
Disability insurance replaces a portion of the policyholder’s income during a period of disability. The money can be used however the policyholder wishes, such as paying medical bills, covering normal household expenses or focusing on quality time with the family.
During a period of disability, disability insurance can make the difference between keeping your head above water and having to declare bankruptcy.
Additional Coverage May Be Necessary
Although disability insurance provides important protection, some people may need additional coverage.
Individual disability insurance provides long-term protection, and this can be essential for illnesses and injuries that last for years. However, the elimination period is often around 90 days, and policyholders may have to wait an additional 30 days before actually receiving any disability benefits.
For people who don’t have enough savings to cover three to four months of expenses plus medical bills, an additional policy may make sense. Short-term disability insurance provides shorter elimination periods and shorter coverage periods, and it can work well with long-term disability insurance. Critical illness insurance is another great option. It provides a lump-sum payment that can help policyholders make ends meet until disability insurance benefits kick in.
Are Your Clients Covered?
If you’re not protecting your clients from the financial impact of disability, you’re doing them a disservice. The Medical Bills Infographic provides key facts that you and your clients should know. Download your copy.