Health insurance pops up occasionally as a major national debate. While there is no agreement on the solution, everybody agrees on the problem: too many people are uninsured or underinsured.

Catastrophes and Bankruptcy

As you already know, a bankruptcy can wreak havoc on your credit for seven to ten years. More importantly, bankruptcy is not an enjoyable experience. Before a bankruptcy, people get worried and stressed about their financial situation. Creditors call to collect their money. In a financial crisis, you would likely scale back your spending by skipping meals, dropping phone service, or avoiding visits to the dentist.

In 2005, A Journal of Health Affairs publication shed a disturbing light on the truth about bankruptcy and medical expenses. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhandler found that approximately half of the bankruptcies they studied were a result of unmanageable medical costs. You can see the details of the study at the Journal of Health Affairs Web site (www.healthaffairs.org).

The most startling finding was that roughly 75 percent of people who filed medical bankruptcy had medical insurance at the onset of their illness. Furthermore, these were middleclass people. Health insurance does not guarantee against major expenses; the combination of medical-care costs, prescription-drug costs, and the loss of income were found to be especially damaging. Subjects in the study lost their income for a variety of reasons. Perhaps they were unable to work or had to scale back their hours, or they took time off to care for a family member.

Causes of bankruptcy in the study included:

• 28.3 percent — Illness or injury

• 7.7 percent — Birth or addition of a new family member

• 7.6 percent — Death in the family

• 2.5 percent — Alcohol or drug addiction

• 1.2 percent — Uncontrolled gambling

With this knowledge, you should understand that it is not enough to simply have health insurance. You must have the right kind of health insurance, and it is a good idea to have other types of insurance as well. The next time you apply for benefits, make sure you consider the risks to you and your family. Finally, don't let your coverage lapse, even for brief periods of time.

Group Coverage

A lot of people are fortunate enough to have coverage through their jobs. Employer-sponsored insurance programs often, but not always, cost less for the end consumer. The insurance company assumes that all of the employees — through the law of large numbers — will balance each other out. In other words, some will be profitable and some will be unprofitable.

If you have group coverage through your employer, be sure to understand exactly what is covered. You may find limits or exclusions on certain treatments, such as cosmetic, mental health, or alternative procedures. These limitations can cost you dearly if you find yourself in need. If you find that there are more exclusions than you'd like, consider purchasing individual insurance to cover the gap. Some health-insurance products cover specific treatments, so you might not need a full-blown health-insurance policy for just a few items.

COBRA

If it sounds like the name of a dangerous snake, you might not be far off. In truth, the Consolidated Omnibus Budget Reconciliation Act (COBRA) is helpful for consumers. It was designed to help people who lose group coverage after an employee job loss, death, divorce, or other qualifying event. COBRA might be the best of several unpleasant choices — it is better than going uninsured.

If you lose your job, is your health insurance going to be on the top of your to-do list? For most people it usually isn't. You would most likely brush up your resume, call people in your network, and check your budget to see how long you can last without a paycheck. COBRA makes it easy to keep your group coverage for a limited time, until you can find a more permanent solution. You keep the same coverage you had while employed; however, you have to pay the full price for coverage.

HIPAA

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) added protections for consumers with group health-insurance plans. The Act can help you protect your credit because it limits exclusions and discrimination in group health-insurance policies.

Since HIPAA, it is easier to make sure you do not have gaps in your health-insurance coverage. You should do everything you can to make sure you always have health insurance. If you go without health insurance for too long (currently 63 days), you risk losing access to the most complete health coverage. You might be subject to pre-existing condition exclusions and restrictions. However, you can prevent this if you keep continuous coverage and document that you have done so.

Anytime you terminate an insurance contract, whether it is an individual policy or a group policy through your job, make sure you get a Certificate of Coverage that shows the dates you were covered. In addition, you should enroll in your group health plan as soon as you are eligible. If you wait, you risk giving up some of your rights.

Temporary Insurance

Sometimes it is hard to coordinate insurance start dates and end dates. Rather than run the risk of going without insurance coverage, consider a temporary insurance policy, also known as short-term insurance. These policies cover illnesses and accidents for short periods of time, and monthly premiums are much lower than a standard individual insurance policy.

If you don't want to use your COBRA benefits, consider a lower-cost temporary plan. These plans often qualify as creditable insurance under HIPAA, so they can help you avoid lengthy gaps in coverage, which will limit your next permanent policy. Temporary plans are usually restrictive, and may exclude pre-existing conditions, but they can fill the gap so your next policy will not exclude pre-existing conditions. Furthermore, they can help you stay out of bankruptcy if you get an unexpected surprise.