Seniors struggle with medical bankruptcies, health insurance woes

By Daniel Workman

More than two-thirds of seniors age 65 and over who file for bankruptcy attribute their financial situations to health problems, according to an August 2010 report by University of Michigan Law School professor John Pottow. For 32.6 percent of those older Americans, medical bills were cited as the cause of their bankruptcies.

Medical expenses are expected to weigh even more heavily on seniors in the future. Fidelity Investments research found that retiree health care expenses for 2010 were:

• 56 percent higher than in 2002.
• 4.2 percent higher than in 2009.

Returning to work and turning to credit cards

About a third of elderly bankruptcy filers reported a return to work after their initial retirement, according to the University of Michigan study.

Among these senior workers and jobseekers:

• 15.4 percent said that their goal was to obtain employee health insurance benefits
• 18 percent said that they needed earnings to pay for health care expenses.

Medical costs also are pushing older Americans into a vicious cycle of credit card debt.

According to a report by Melissa Jacoby and Mirya Holman in the Yale Journal of Health Policy, Law and Ethics, one-third of bankruptcy filers in poor health had financed their medical expenses with credit card debt.

Equally troubling, according to the University of Michigan study, is that Americans age 65 and over carry 50 percent more credit card debt than younger debtors. Credit card interest and fees push senior citizens into bankruptcy 50 percent more often than lower age brackets.

Medicare’s costly coverage gaps

Medicare does afford some protection to most citizens in their golden years. However, Medicare plans have deductibles and coinsurance amounts for which plan enrollees are financially responsible. In addition, enrollees pay an annual Medicare premium.

Medicare also has many coverage limitations, exclusions and other gaps. One example is the controversial prescription drug “donut hole.” If a year’s drug expenses exceed $2,830, patients must pay for medicine until their out-of-pocket expenses reach $4,550, which is when catastrophic coverage finally kicks in.

Based on data from a Kaiser Family Foundation study, individual seniors’ average out-of-pocket spending to cover Medicare gaps during 2005 was calculated at roughly 18.7 percent of their annual income. For those over age 80, medical bills can easily exceed 100 percent of income.

The average married couple at age 65 will spend $260,000 in lifetime uninsured health costs, according to the Center for Retirement Research. For 5 percent of seniors, that amount is at least $570,000. In 2007, total financial assets for more than 85 percent of American households approaching retirement fell below $570,000 — making many seniors prime candidates for severe financial hardship.

Fighting medical bankruptcy

The most proactive solution is to carefully plan to have enough money for medical emergencies after retirement. One strategy is to start an automatic savings program well before age 65, thus creating a personal medical emergency reserve fund.

Private insurance can counterbalance Medicare coverage gaps. Supplementary policies known as Medigap policies can fill some of the gaps in Medicare and can be used to cover co-pays and deductibles. If seniors sign up within six months of the first day of the month when they reach age 65 and are enrolled for Medicare Plan B, they cannot be declined or charged higher premiums for Medigap coverage.

Long-term care insurance policies can be an important line of defense against highly expensive nursing home care. To enjoy greater premium discounts, Americans should not wait until their 70s to buy long-term care coverage. Older applicants are much more likely to be denied coverage for health reasons, according to the American Association for Long-Term Care Insurance.

Finally, Medicare coverage details are complex and often change. To help seniors keep informed about specific health care questions and concerns, online Medicare support groups are available. The DailyStrength website is home to a popular Medicare support group for seniors. Another is the iMedix online community forum.