how to avoid medical debt

Medical debt is a $220 billion problem in the U.S. That figure comes from the Peterson-KFF Health System Tracker, which shows that the bulk of this debt comes from individuals who owe more than $10,000. Brokers can help by showing their clients how to avoid medical debt.

Americans Are Unprepared for Medical Debt

According to the Report on the Economic Well-Being of U.S. Households in 2022 from the Federal Reserve, 23% of adults had a major unexpected medical expense in the last 12 months, averaging between $1,000 and $1,999.

While unexpected medical bills are common, many Americans lack the savings needed to cover them. The Federal Reserve found that only 63% of adults say they would cover a $400 emergency expense with cash or its equivalent. The remaining 37% would have to borrow money, sell something or put the expense on a credit card – or they just wouldn’t be able to cover it at all.

Health Insurance Hasn’t Solved the Problem

The Peterson-KFF Health System Tracker says that medical debt remains a persistent problem even though more than 90% of the U.S. population now has health insurance. One issue may be that the majority of private sector workers are enrolled in high-deductible health plans, according to a survey from Value Penguin. On top of large deductibles, individuals can also face copays that add up and higher out-of-network costs.

As a result, medical debt is common. In fact, the KFF Health Care Debt Survey found that 41% of adults have some form of medical debt, while 24% have medical debt that is past due or that they cannot pay, and 18% don’t think they’ll ever pay it off.

Many U.S. households have to make hard decisions due to their medical debt. KFF found that 63% cut back spending on food, clothing and basic items, while 48% use up all or most of their services and 28% have delayed buying a home or education for themselves or their children.

Medical Debt Disproportionately Impacts People with Disabilities

The Peterson-KFF Health System Tracker shows that adults with a disability are more than twice as likely to have medical debt compared to adults with no disability.

This doesn’t mean that people without a disability don’t need to worry about medical debt. A currently healthy person can become disabled at any time, and when disability occurs, many people face the double whammy of medical bills and lost wages, and that’s a recipe for financial disaster.

Cancer is a leading cause of disability. The American Cancer Society says that more than 2 million Americans will be diagnosed with cancer in 2024. Treatment is expensive, and cancer patients face $21.1 billion in treatment-related costs each year, including $16.2 billion in out-of-pocket costs and $4.9 billion in costs associated with the time and travel required to receive care. According to the American Cancer Society, 51% of cancer patients say they have cancer-related medical debt.

Illness and Injury Can Lead to Foreclosure and Bankruptcy

According to, two of the major reasons for foreclosure are medical emergencies or illnesses resulting in a lot of medical debt and job loss or reduction in income.

These two factors often coincide. When a person experiences a serious illness or injury, they may not be able to continue working. In addition to the effects of the illness or injury itself, treatments can also be draining, and they may require travel to medical facilities located in other cities or states. The American Cancer Society says that 74% of cancer patients report missing work, and 43% say the financial effect of missing work made things somewhat or very difficult.

Helping Clients Prepare for the Financial Impact

Having health insurance is important, but on its own, it’s often not enough to shield families from the financial impact of an illness or injury. Most health insurance plans leave substantial out-of-pocket costs, and many Americans don’t have the savings needed to cover these costs, especially when they’re dealing with lost income.

That’s why disability insurance is needed. Disability insurance provides a monthly benefit to replace a portion of the policyholder’s pre-disability income. This money can be used however the policyholders sees fit, such as paying off medical bills or covering basic necessities. The funds can also give people the financial freedom to focus on getting better and spending time with their loved ones instead of worrying about making ends meet.

Although some people have short-term disability insurance or long-term disability insurance through work, these plans may not provide enough coverage. For one thing, they’re not portable, so workers who switch jobs will lose their benefits. For another thing, the terms are not flexible, and policyholders may not have access to the benefit periods, coverage amounts and extra benefits they need. Individual disability insurance can provide a greater level of protection, either layered on top of group disability insurance benefits as supplemental coverage or purchased alone as standalone coverage.

For even more robust protection, workers should consider critical illness insurance in addition to disability insurance. While individual disability insurance can reduce the financial impact of a long-term disability, plans typically include waiting periods of around 90 days. This means that policyholders need to be prepared to wait a few months before they receive benefits – but many Americans lack the emergency savings needed to do that. A critical illness insurance policy can provide a lump sum payment to help individuals deal with immediate costs while they wait for disability benefits to kick in.

Do Your Clients Understand the Threat of Medical Debt?

Your clients may think they’re protected from medical debt because they have health insurance, but they may not be as protected as they think. The Medical Debt infographic provides eye-opening figures that highlight the need for additional protection. Download your copy.


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