A few years ago, a good friend of mine was seriously injured in an automobile accident and spent several months in the ICU and recovery.

He underwent emergency surgery, during which his physician brought in an out-of-network doctor to assist, without his knowledge or consent. Thanks to that, his insurance refused to cover the $85,000 bill from the out-of-network surgeon.

With copays, deductibles and out-of-network charges, he was left on the hook for $245,000 he didn’t have. His friends tried fundraisers and a Kickstarter campaign, but it wasn’t enough.

In the end, being alive bankrupted my friend … and he was one of the lucky ones.

Health Insurance: Better Dead Than Deadbeat?

What happens if you can’t pay a medical bill?

Typically, the hospital or doctor — or a vulture collection agency that’s bought your debt — will sue you and obtain a judgment lien filed against your home and bank accounts. They’ll also garnish a percentage of your employment earnings.

Of course, before it gets to that, most people file for personal bankruptcy, which stops the wage garnishment and wipes out the medical bills. But that still means giving up all of your assets, including financial accounts, real estate and any equity in your home. It also means you are financially “dead” for at least seven years.

A study by Harvard University a few years back found that half of the 1.5 million annual U.S. bankruptcy filings are caused by medical bills.

But here’s the shocking thing … three-fourths of those bankrupt folks had health insurance when they fell ill or were injured.

The brutal fact is that even if you have health insurance, you and your family are at significant financial risk.

One reason is simple refusal to pay by your insurer. This happened routinely before the Affordable Care Act, aka Obamacare. According to one study by the California Nurses Association, for example, California’s largest insurers denied 13.1 million claims in just the first three quarters of 2010. That amounted to 26% of all claims submitted.

Other culprits are huge copays, large deductibles and treatments that aren’t covered under the tiny print in your insurance contract. One of the most common scenarios is what happened to my friend: an out-of-network doctor is brought in during a procedure without the patient’s knowledge or approval.

Government Giveth, Government Taketh Away

For all its faults, Obamacare largely put a stop to most of that — except for the large health insurance deductibles, which are one of its main flaws. It also abolished lifetime coverage caps … which often used to be so low that they could easily be eaten up in the first week of a hospital stay.

According to Congress and the White House, all that’s set to end. Obamacare will be repealed, and whatever replaces it won’t include those protections (or so says the Senate).

There’s another area in which government can strip you of your assets, however.

Many states require that people who require nursing or home care under Medicare exhaust a certain proportion of their net worth before the benefit kicks in. With the average cost of nursing home care exceeding $8,000 per month, many people have no choice but to liquidate their family’s assets to obtain the necessary care.

Say goodbye to your kids’ inheritance.

A Trustworthy Solution

In The Bauman Letter, I often write about asset protection trusts (APTs). APTs are irrevocable trusts specifically tailored to protect your personal and business assets … even from medical creditors. The beneficiaries of an APT can include your living family, and even their descendants.

For example, an APT may hold your home, business and financial accounts. Or the trust can own an entity such as an LLC that in turns owns your personal residence. The APT can be structured to preserve your home’s tax benefits — the mortgage interest deduction, property taxes and avoidance of capital gains taxes. And of course, it includes appropriate estate-planning strategies as well.

Depending on how and where you set up your trust — Nevada is my favorite domestic jurisdiction — you can even make your APT portable, so that it can migrate offshore.

That forces any future plaintiff to sue it in a potentially unfriendly foreign jurisdiction, which is often enough to stop a lawsuit in its tracks.

Avoid the Red Zone

Health Insurance: Your Money or Your LifeFor many of us, proposed changes to insurance and other laws mean that our personal financial “risk meter” has jumped into the red zone.

Fortunately, the asset protection solutions I cover in The Bauman Letter, like an asset protection trust, aren’t just for the very wealthy.

They’re for you, too. But you must make the first move by setting one up.

Because once tragedy strikes … it’s too late.

Kind regards,
Health Insurance: Your Money or Your Life
Ted Bauman
Editor, The Bauman Letter