Not only are most personal bankruptcies due to medical bills beyond the ability of the consumer to pay, but most of the households declaring bankruptcy for this reason do so despite having health insurance coverage.
Researchers from Harvard Law School, Harvard Medical School, and Ohio University reported 60 percent of personal bankruptcies in the United States involved medical bills, an increase of 50 percent over the past six years. Furthermore, seventy-five percent of those bankruptcies were claimed despite having health insurance, intended to cover medical expenses and prevent unaffordable bills.
The researchers indicated that only 29 percent of those who declared bankruptcy explicitly cite medical bills as the cause, but the 60 percent figure includes households with medical bills totaling more than 10 percent of family income.
Health insurance appears to be useless when it is most needed. Twenty-five percent of insurance companies cancel coverage immediately when an individual covered suffers a disabling illness. Within a year, another twenty-five percent of insurers cancel coverage.
Even with medical coverage, here are the average bills, out of pocket, for some of the most expensive conditions:
- Multiple sclerosis: $34,167
- Diabetes: $26,971
- Injuries: $25,096
- Stroke: $23,380
- Heart disease: $21,955
The study was funded by the Robert Wood Johnson Foundation and will appear in the August edition of the American Journal of Medicine.
Medical bills underlie 60 percent of U.S. bankruptcies: study, Reuters, June 4, 2009
According to early news reports, General Motors will file for bankruptcy one hour from now, at 8:00 am Eastern Time this morning. GM was officially born as a company on September 16, 1908. Its long history is a reminder that no company will survive forever regardless of its performance; like humans, corporations are mortal and if you want to see one fail, you just have to wait long enough.
Bankruptcy isn’t truly death, however. General Motors has the opportunity to restructure, shedding its poor performing businesses. Thanks to a massive government bailout, GM can renegotiate with its creditors. The government will own 60%, a controlling share, of the new General Motors. With this massive restructuring, you can expect a new GM that will look and and operate quite differently, and the changes will affect many different people throughout the world. Here is how GM’s bankruptcy might affect you.
General Motors employees and retirees
By the end of next year, General Motors predicts it will cut 20,000 jobs. 2,400 dealerships and 12 plants across the country will be closed. This is after the company has been reducing its staff consistently throughout the decade. 300,000 employees at dealerships will be affected by the cuts.
General Motors retirees will see their benefits, such as health insurance, reduced.
Suppliers and other companies that rely on General Motors will also be affected. There will be job reductions throughout the entire automotive industry.
General Motors vehicle owners
Not much will change for General Motors’ customers. Warranties will continue to be valid, with a government guarantee for back-up insurance. Maintenance and other service might be more expensive with fewer parts suppliers and dealerships available to provide competition in the marketplace.
GM will eliminate a number of its brands to focus on the vehicles that show a potential for profit. The company will have to be more aware of the marketplace and remain as flexible as possible to respond to market demand. This could mean some new, more fuel efficient cars if this remains a priority. With the Administration pushing for tougher regulations in the automotive industry, this may be a necessity regardless of popular interest.
General Motors stockholders and bondholders
If you own GM’s stock, you have already been affected by the anticipated bankruptcy. The stock price, currently trading at $0.75 per share, has fallen 95.74% over the past year. Any investment held in General Motors will only be recovered if the restructuring is a success and the government relinquishes its equity.
During the bankruptcy, GM’s stock will likely be unavailable to trade. Standard & Poors will likely remove General Motors from the S&P 500 and the same fate is predicted for GM’s inclusion in the Dow Jones Industrial Average. The company was already removed from the S&P 100 last year. This presents one drawback of index investing: failing companies are often represented as thee value of their shares fall to zero, but fast-growing companies, which would normally balance out those that fail, are not picked up by the index until they have already experienced their greatest growth.
If you invested in a corporate bond from GM, you will lose your investment. Your bond rights will be replaced by a portion of stock in the new General Motors.
Overall thoughts for the consumer
With any luck, General Motors will emerge from bankruptcy and from government control a leaner company ready to compete in the automotive industry. General Motors’ current state shouldn’t be a reason to drive potential customers away from their vehicles. GM’s cars should continue to be evaluated on their performance, safety features, fuel economy, cost to own, and pleasure, just like any other vehicle produced by any other corporation.
I have been helping my girlfriend shop for a car during the past couple of weeks, and we’ve noticed in the dealerships we have visited that there is very little in stock. Lots are half empty, and this does not apply to General Motors only, or even only “domestic” automotive makers. The prices for what we can find are somewhat competitive right now, but I expect prices to rise over the next few months as the industry reacts to the loss of jobs, suppliers, and competition.
If you have not been aware of the recent news, General Motors and Chrysler have asked the government for more money, but the Obama administration is pushing back. The government’s task force has determined that the restructuring plans submitted by the companies in return for continued financial support are inadequate.
As a result, the Chairman and CEO of General Motors, Rick Wagoner, is resigning from his position and Chrysler is heading towards a possible merger with Fiat. With GM, the government will provide the company with the funds it needs to operate for sixty days. There is a possibility that General Motors will not survive in its current form two months from now. Chrysler, on the other hand, will only have thirty days to turn around a plan for moving forward.
Bankruptcy may be the answer for both companies. To prevent consumer trepidation about buying a car from a company that might not support its obligations like warranties and maintenance, the Treasury Department has stepped in. The government plans to back warranties on all GM and Chrysler vehicles purchased while the companies exist in their current state of collapse or restructuring.
If you typically buy cars from GM and Chrysler, would you be more or less inclined to purchase a vehicle right now? Are you confident your car will receive the support it needs from these companies or the government throughout its usable life?
You can read the full text of President Obama’s remarks today about General Motors and Chrysler here.
Profit From the Obama Economy. Invest in biotech, green energy, infrastructure, advanced manufacturing, and information technology. These sectors of the economy are expected to grow during Obama’s presidency.
A New Way to Transfer Cash. New technology lets customers use ATMs to transfer cash from one person to another. You will be able to register your cell phone use text messages to receive passwords that allow you to retrieve money. No bank accounts are necessary. One person deposits cash into an ATM, sends the money using the controls, and the receiver accesses another ATM to withdraw the money. I would hate to see the fees.
Citi to Modify $20 Billion in Home Loans. If the press release reflects the action Citi takes, 500,000 Citi mortgage customers will be able to lower their payments to just a percentage of the interest due each month for a total payment of 40% or less of their income.
Announcing the Save $1,000 in 30 Days Challenge. Each day this month, I Will Teach You to be Rich is presenting one tip to help readers save money now. Ramit is guaranteeing that he will not include “stupid frugality tips.” One such tip that passed the test is to involve your friends with your savings goals.
What Circuit City Customers Need to Know. With the announcement that Circuit City is declaring bankruptcy, customers and investors are concerned. They are honoring gift cards, but you should use these as soon as possible. Warranties will be serviced by third parties (as they would have been otherwise).
News and Blogs sponsor: Discover More Card is currently offering a $50 bonus for new cardholders.
If you have any Linens ‘n Things gift cards sitting in a drawer or collecting dust on top of an old desk in your loft, use it now while you still can. The store is going out of business nationally and will be closing its doors at all locations. From the signs I’ve seen, hoisted by bored individuals at intersections likely paid minimum wage or lower, the store is offering its inventory up to 30% off — hardly a liquidation sale. Perhaps as the end draws nearer the deals will be more impressive. After all, in the past you could easily get 20% off on your purchase by bringing in a competitor’s coupon.
Does the world need both Linens ‘n Things and Bed, Bath and Beyond? You would think that competition would be good, but other than the name, as far as I could tell these two stores are exactly the same. In the stores I’ve seen, the floor layout is similar and the products are virtually identical. They accept each other’s coupons. Where I live, it’s common to see the two stores within 3,000 feet of each other.
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