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How to Avoid The Number One Cause of Bankruptcy

We provide a lot of direction and education about behavior, saving, budgeting, and getting out of debt. These are areas that can't be ignored if you want to be successful with money. There is another area that is essential in getting you and keeping you on the road to financial freedom, and that is insurance—specifically, health insurance.

According to Motley Fool, medical bills and medical debt are one of the leading causes of bankruptcy and foreclosure. Health insurance won't protect you from everything, but it will certainly soften the blow, if and when you have a medical emergency. 

With open enrollment beginning November 1st through the Affordable Care Act (ACA), it is essential to make sure that you understand the basics of health insurance. Navigating through all the mumbo-jumbo can be confusing. This week's blog posts will help you with the basics you need to know when choosing the right health insurance.

The first thing you need to understand is that insurance is a transfer of risk, designed to protect you from financial loss. Most people can't afford to pay out of pocket for a $42,000 surgery. That would be a substantial financial loss, so having health insurance transfers that risk from you to the health insurance provider.

You can obtain your health insurance through a few places:

  • Your Employer
  • The Marketplace/Affordable Care Act/Obamacare
  • Private Insurer

Usually, your employer is the least expensive option. Check with your human resources department to see when their open enrollment is. You can obtain health insurance through the Marketplace by visiting healthcare.gov beginning on November 1st. If you choose to go the private route, understand that you won’t be eligible for premium subsidies like income-based discounts that you could receive using the marketplace/ACA.

Once you've figured out how to obtain your health insurance, you need to find the right one for you, and if you have a family, theirs as well. Some questions to consider:

  • How much treatment have you received in the past?
  • Do you take any prescription medications?
  • What does the future look like?
    • Planned surgeries?
    • Pregnancy?
    • Recently diagnosed with an illness?
  • Do you have and want to keep a primary doctor?
    • Make sure they are in the network or pick a plan where you will be able to see them.
Now you might be thinking, "I can't predict the future. How should I know what I will need?" This is very true. You will never know when a situation will arise, but you can take a very good guess based on your history. 

After answering these questions, evaluate where you live. If you live in or around a major metropolitan area, you will have more healthcare provider choices. If you live in a rural area, you will likely have less. This may affect the health insurance you select based on the choices you have in your area.

Next, you will want to compare the out-of-pocket costs of plans that are available to you based on your answers to the questions above. A lower premium, which is a bill you pay on a monthly basis, will have higher out of pocket costs. Someone who is healthy and doesn’t see the doctor much may select this option. Higher premiums will have lower out-of-pocket costs. If you're someone who sees a doctor often, needs frequent emergency care, takes expensive meds or has been diagnosed with a chronic condition, such as diabetes or cancer, you may prefer this.

Depending on your income, you may qualify for subsidies like income-based discounts when buying from the marketplace. You can get more details on this by visiting healthcare.gov.

Another resource for you to consider is hiring an independent insurance agent that will do some of the work for you. If you don't have time to research all the plans and compare the details, or if insurance becomes too confusing to understand, hiring an independent agent could benefit you. Keep in mind; you still need to understand what it is you're buying so you're knowledgeable of your insurance coverage.

Stay tuned for part two on Thursday to learn more about health insurance plans and how each piece affects your financial liability to your medical providers. We will also be covering some basic terms you should be aware of when shopping for health insurance. 

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