Our Emergency Fund? It's Already Topped By Our Medical Debt

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Our health and our wealth are more closely tied than many of us realize. For example, you're more likely to make necessary lifestyle changes to improve your health if you're also saving for retirement. But a recent Bankrate.com study suggests that a big reason many American don't save, even for emergencies, is because they have far too much health care debt.

It's not exactly news that many Americans aren't financially ready for an emergency, let alone for retirement. But a quarter of people completing the Bankrate survey reported that their medical debt was higher than their emergency savings fund. By comparison, 51 percent said they had more in emergency savings, and 24 percent either didn't know or refused to answer. What that actually means is that 25 percent is, in fact, the lowest possible percentage among those surveyed with more medical debt than emergency savings -- the true percentage is likely higher.

Depending on demographics, it gets worse. Among people who make less than $30,000, the percentage was 41 percent, and more than a third of parents with children under 18 had medical debt that outweighed savings.

More Financial Stress

"One of the messages we're always emphasizing is the need to have some cash in case of emergency," said Bankrate.com insurance analyst Doug Whiteman in an interview. "That's difficult for a quarter of Americans who have more medical debt than they have emergency savings. This is another cause of financial stress for a lot of people, like stagnant wages and school loans [also are]."

And 55 percent said that they were either somewhat or very worried that they might not have affordable health insurance in the future. Half of men were worried, compared to 60 percent of women. Only 22 percent of all respondents weren't worried at all.

Even the problem of medical debt doesn't affect you personally, it still does indirectly. "I think this is an important issue that affects consumer confidence and the broader economy," Whiteman said. "[People's worries] about their health insurance or medical cost[s] ... are additional reasons why they might hold back on their spending, which is something the economy needs to keep powering forward."

What About the Affordable Care Act?

You might wonder why so many people still live in fear of medical debt -- the potential future variety, not debt they've already taken on -- given that Obamacare is designed to relieve some of the pressure and subsidize health care for families and individuals with lower incomes. But there are a number of reasons why the Affordable Care Act isn't making more of a dent in their pessimism.
  • The ACA only came into full force this year. The most recent Health Reform Monitoring Survey from the Urban Institute's Health Policy Center said that the uninsured rate among non-elderly adults is 13.9 percent. But there's a great deal of existing debt that was incurred before the law took affect.
  • Despite a nationwide campaign to get the word out, some people's fears are likely due to a "lack of awareness of the Affordable Care Act," according to Whiteman, who also said that "maybe people aren't buying the promises being made by the law."
  • And then, 59.4 percent of uninsured adults said that they can't afford coverage. That is likely due in part to the fact that in 20 states, Republican governors, legislatures, or both, have refused to expand Medicaid coverage, a move that has had a deep impact on the level of care available to the poor. (Currently, 27 states have expanded Medicaid; three more are considering doing so, or are floating alternative plans.)
  • Many people opting for subsidized plans are choosing cheaper bronze plans that can have out-of-pocket deductibles as high as $6,350 for an individual or $12,700 for a family. Those options can easily lead to hard to manage debts after a significant accident or hospitalization -- though far less than if the patient was uninsured.
Although critics have complained that the ACA and its attempts to remake the U.S. health care system would put the brakes on the economy, the numbers make it clear that it's the converse that is true. Those millions of Americans who are still unable to get quality health care that they can afford are an anchor, dragging on economic growth. With their households in perpetual jeopardy of financial collapse, they can't participate fully in the consumer economy -- and consumer spending is the largest driver of GDP growth in America. Even those who firmly believe in the sink-or-swim school of economics should recognize that strapping lead weights to people runs counter to the twin goals of promoting personal responsibility and national economic recovery.
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