Plan for medical disaster when you invest

I usually stick to the investing side of personal finance on this blog, but the new bankruptcy laws (and some old information I found while researching them) can seriously affect your investment philosophy as you’ll want to keep more liquid assets, like cash, in your banking accounts to cover health related expenses, even if you have health insurance. Here’s why, in the words of Elizabeth Warren, a professor at Harvard University:

The link between jobs and health insurance is strained beyond the breaking point. A harsh fact of life in America is that illness leads to job loss, and that can mean a double kick when people lose their insurance. Promising them high-priced coverage through COBRA is meaningless if they can’t afford to pay. Comprehensive health insurance is the only real solution, not just for the poor but for middle-class Americans as well.

Without better coverage, millions more Americans will be hit by medical bankruptcy over the next decade. It will not be limited to the poorly educated, the barely employed or the uninsured. The people financially devastated by a serious illness are at the heart of the middle class.

Every 30 seconds in the United States, someone files for bankruptcy in the aftermath of a serious health problem. Time is running out. A broken health care system is bankrupting families across this country.

I included more than necessary so that everyone could clearly see that this is a highly opinionated article, but regardless of what you think about the conclusion the facts supported by the Harvard University study suggest that even people with good jobs can face bankruptcy in the face of serious illness. Lose the job, lose your insurance. Lose the insurance, go bankrupt trying to pay your medical bills.

Now that was a bad system. The new bankruptcy laws make it even worse. That’s why it is critcal when planning your investment strategy to have some liquidity. Be certain that you can pay for health insurance if you lose your job due to serious illness. And of course make sure it is the right kind of health insurance. High co-payments, deductibles, exclusions from coverage and other loopholes are things you have to look out for. To repeat part of the artcile:

A harsh fact of life in America is that illness leads to job loss, and that can mean a double kick when people lose their insurance. Promising them high-priced coverage through COBRA is meaningless if they can’t afford to pay. Comprehensive health insurance is the only real solution, not just for the poor but for middle-class Americans as well.

The US government will not make sure you get comprehensive health insurance. You have to find it yourself. With the new bankruptcy laws, the US government will make it more difficult for you to declare bankruptcy when medical problems make you poor.

I’ve recently increased the amount I spend on vitamins and antioxidant supplements. I’m also getting more serious about working out. Getting seriously ill is just not an option for Americans so do everything you can to prevent illness (eat well, get antioxidants, exercise) and make sure your investment strategy is flexible ebough to handle a simultaneous illness/job loss.

2 Responses to “Plan for medical disaster when you invest”

  1. Scott says:

    James,
    Nice post. It should be the goal of every hard-working person to have 6 months salary tucked away for these kinds of emergencies. That sounds like a lot, but paying off your bills is more important than that boat or RV…

  2. Kevin says:

    Your comments about the bancrupcy rate is an essential factor to consider in an investment strategy. And it can happen for any number of reasons – health, bad luck, retrenchment, poor judgement – and so on. It’s why I encourage all to look at developing a small, independent home based business – a very useful saftey net if everything else implodes.

    Regards

    Kevin