In the United States, almost 40 million people are hospitalized every year, according to the Health Cost Utilization Project. The number of uninsured hospital stays has grown by 42% between 1997 and 2009, the last year for which statistics are available.
If you get sick and require medical care, either in or out of the hospital, you may run into several consequences, even if you have a gold-plated healthcare plan. Here are four situations you should expect and plan for in case you develop an illness. (For related reading, see Fighting The High Costs Of Healthcare.)
1. Health Insurance Coverage
The impact of an illness on your health insurance coverage depends on both the illness and the provider. Your coverage may or may not extend to the illness you have and your coverage may be capped or limited, leaving you exposed to paying out of your pocket. The real challenge comes if you are diagnosed with a chronic illness, such as diabetes or asthma. Health insurance companies can change the terms of their policies on an annual basis and you may find that they will no longer cover you for your existing illness.
If you don't currently have health insurance, you may have difficulties being accepted for a policy at all. If you do get one, your rates are likely to be significantly higher than average. Proposed legislation will preclude insurance companies from dropping coverage in the event of illness, but it is still a very real threat currently.
2. Co-Pays and Deductibles
The vast majority of health insurance policies include required co-pays and deductibles that can eat into your savings. Co-pays represent the portion of medical costs that you must pay in order for the insurance company to pay the rest. For example, your policy may have a co-pay of 20%, meaning that you have to pay $200 of a $1,000 medical bill and the insurance company will pay the remaining $800. Deductibles are the amounts you have to pay before any of the insurance kicks in.
For example, a policy may state that you have to incur (and pay for) $3,000 of medical costs before the co-pay split kicks in. You can plan ahead of time for the deductible, as it is a known dollar amount. The co-pay can be unlimited so, if you have a serious illness or have been in an accident, you could be out of pocket thousands or tens of thousands of dollars. (To learn more, check out Buying Private Health Insurance.)
3. Tiered Levels of Care
Each health insurance policy has its own rules about what procedures it will and will not pay for. As medical knowledge expands and new treatments become available, often health insurance lags behind. If you become ill, you may be faced with the decision of accepting an older (and perhaps less effective) treatment that your insurance company has approved, or paying out of pocket for a newer solution. If you are diagnosed with a progressive disease like cancer, where immediate treatment can improve the prognosis, you may be pressured to make a difficult monetary decision about your health.
4. Dropped Life Insurance Coverage
Even after you recover from an illness, you may still encounter insurance troubles. Some illnesses are considered by life insurance companies to be markers for further illness and the chance of death. For example, a seizure could indicate further seizures or epileptic events in the future, which puts you at higher risk for death.
Life insurance companies guarantee coverage for a set period of time, however, they have no requirements to renew your coverage. You may find yourself unable to secure new life insurance, thereby putting your financial and estate planning at risk. (For additional reading, see 5 Life Insurance Questions You Should Ask.)
The Bottom Line
Becoming ill could be one of the most financially impactful events in your life. Take some time to review your health and life coverage while you are still healthy to ensure that you understand the potential financial consequences of sickness. In particular, make certain that you have access to available funds to cover deductibles. Work with a financial planner or CPA to ensure that you have the coverage you need. (To help you determine if you have enough coverage, read How Much Life Insurance Should You Carry?)