Unexpected medical expenses can have a devastating impact on a household’s financial picture.  The traditional model of having your employer pay a regular monthly premium that covers almost all healthcare costs is in rapid decline.  More and more consumers are left with bills that can wipe out savings and leave a lingering, often unpayable, debt.

Medical incidents create financial problems for people in several ways.  They incur medical bills that they may be unable to pay.  Additionally, if a person becomes too ill to work, they lose income.   Research done on personal bankruptcy found that nearly one half of the 1.4 million American families that filed for personal bankruptcy in 2001 experienced medical bankruptcies. More than three-quarters of them had health insurance at the time of the incident.

Higher healthcare costs impact overall household finances. In a recent survey, individuals indicated that increased healthcare costs had:

• Resulted in a decrease in contributions to retirement (30 percent)
• Resulting in a decrease of other savings (52 percent)
• Created difficulty paying for basic necessities (29 percent)
• Created difficulty in paying other bills (36 percent).

In a time of negative savings, the healthcare system and trends ask consumers to make complex trade-offs with little guidance.  They may have multiple options to choose from (including retirement funds, second mortgages, credit cards etc.) but lack a “financial home” with a trusted advisor to figure all this out. 

The context of a personal life cycle impacts individual choices. Race, class, gender and medical history factor into relative risk. But the classic story of the individual who builds assets through their youth, depletes them somewhat in the early stages of raising a family but then has a nest egg for retirement which still drives many of our calculations no longer represents the wildly heterogeneous experiences across a lifecycle.

Intergenerational asset shifting (parents pay for kids, adult children paying for the aging parents by cashing in savings), non traditional families and the loss of “lifetime employment” have altered this permanently.

Asset development and asset protection strategies, including healthcare related strategies, must be retooled for new realities.  There are two sides to this coin.  On the one hand, appropriate products and services need to be offered before a medical event occurs.  This includes both affordable insurance coverage and vehicles for building the assets needed to pay any patient portion that remains.  On the other hand, vehicles need to be created that extend appropriate credit to cover expenses not dealt with through insurance and saved assets.

• What is the impact on individual’s financial security of various credit instruments?  Can we carry those assumptions to the typical products and services targeted to medical debt? What considerations are important in applying these assumptions?
• What would a socially responsible credit card look like? What are the opportunities and barriers to implementing such a card?
• What can we learn from asset building strategies, etc. (opportunity centers, IDAs, CRAs)
• What are the examples of using anticipation of health care costs as an asset building tool?
• What programs help consumers understand Out of Pocket expenses? What programs help consumers develop a plan for dealing with Out of Pocket expenses? What programs are scalable?
• What is keeping the outdated view of a smooth lifecycle in asset development alive?
• Who is building products around a new fact pattern being used?
• What portion of HU is paid by people without it having a detrimental affect on their lives?
• Of those borrowing from lenders to pay HU, what is their source of capital (credit extended directly by provider, branded credit care, resolving line of credit,  bank loans, payday lender, etc).

Credit Related Components:

• Credit Counseling
• Credit Terms (principle, interest, tenor)
• Lines of credit
• Credit Cards points/Incentives programs

Asset Building Related Components:

• Tax Advantage saving plan (529 for health)
• HSA (improved)
• Debit Cards

Hybrids:

• Credit Cards/overdraft protection tied to HSA's