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How vulnerable are you to health care catastrophe?

(MoneyWatch) Citizens like us get handed bills for hundreds of thousands of dollars. Items that may cost $300 cost you over $13,000. Ordinary acetaminophen pills are marked up 10,000 percent. "Nonprofit" hospitals have profit margins that would be the envy of any CEO on Wall Street. You'll read these stories and many more in a disturbing article that came out this week in Time magazine titled "Bitter Pill: Why Medical Bills are Killing Us."

The personal tragedies described in the article can be summed up simply: Either the people featured didn't have medical insurance, or their insurance had very low lifetime limits of coverage, say $50,000 or $100,000, and they quickly blew through these limits because of serious medical issues.

The health insurance policies that cover most full-time workers at large employers typically provide two critical protections. First, these policies have payment limits of $750,000, $1 million, or even higher. And second, the insurance company negotiates steep discounts in the bills submitted by hospitals and physicians. But the people in this story didn't have these types of policies, and when they incurred a serious medical condition, they were left to the medical provider wolves.

In some cases, these people couldn't get medical insurance at any cost, due to exclusions for pre-existing conditions. In other cases, they didn't look too closely at their insurance policy features nor think too much about the possible consequences. Having something called "health insurance" that cost just a few hundred dollars a month was more compelling than actually reviewing the details of the policy and understanding the implications.

I can relate to this personally. I have comprehensive health insurance sponsored by my former employer, and it costs me more than $1,000 per month to cover both me and my wife. And that's after a substantial subsidy from my former employer; it would cost much more if we had to pay the entire cost.

Last year, I had major surgery due to a medical condition that was out of my control to prevent. I was astonished -- and very grateful -- to learn about the extent of the protection offered by my medical policy. The hospital and physician bills submitted to the insurance company amounted to more than $180,000 for the surgery and a six-day stay in hospital. After applying the discounts negotiated by my insurance company, the total came to about $55,000. The insurance policy paid most of this amount, leaving me with out-of-pocket costs of just a few thousand dollars. In my situation, the insurance policy offered by my former employer was the difference between an unfortunate but manageable event and a financial catastrophe.

My health care policy was worth every penny of the substantial monthly premium I pay. And I'm very grateful for the medical professionals who took care of me. I'm glad I had both on my side.

Lesson learned? Take a long, hard look at your health insurance policy. Understand the lifetime payment limits. Don't think you're safe if you're covered for medical costs up to $50,000 or $100,000. Make sure you can afford to pay the out-of-pocket limits. If you find holes in your current medical insurance policy, see if you can buy a policy that gives you better protection. You may be able to find such a policy with your current insurance carrier.

I realize that this could drive up the premium amounts to potentially unaffordable levels for some people. In this case, look for other ways to drive down the premiums, such as using a very large deductible or higher out-of-pocket limits that will still give you protection against catastrophic events.

This lesson is critical if you want to retire before eligibility for Medicare at age 65 and have to depend on an insurance policy from a former employer or one you buy on your own. Once you're in Medicare, the federal government negotiates steep discounts with medical care providers, and the terms of the Medicare coverage limit your out-of-pocket costs (although these costs can still be several thousand dollars, which is one reason to buy medical insurance to supplement Medicare).

By the way, Obamacare will abolish lifetime limits on medical coverage by 2014, assuming that feature survives political scrutiny. In addition, exclusions for pre-existing conditions will be banned. As a result, industry experts predict that medical premiums will increase substantially.

The Time magazine article discusses the political and societal implications of this sorry situation. While these are indeed compelling issues that need to be debated, my focus for this post is on you, specifically on the lessons learned about the steps you should take to protect yourself, given the hostile and dangerous medical care environment we all live in.

Want some emotional motivation to do the job right? Take a look at this astonishing YouTube video of a cameraman in a protective cage being attacked by a polar bear. Imagine that you're the cameraman. The polar bear is the medical care billing collector. The cage protecting the cameraman is your medical insurance policy. Like the cameraman, you don't want any weak links in your protection.

This video leads me to one more lesson learned. The cameraman could have chosen not to be near the polar bear, thereby keeping out of harms' way. While we can't guarantee that we won't incur a major medical condition, we can certainly reduce the odds dramatically by taking care of our health. I'll do everything I can to reduce the odds of being thrown into the medical provider wilderness. Will you?

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