When it launched in 2010, the Affordable Care Act was designed to ensure all Americans could afford health care.
Yet even though the law provided more people with health insurance, it didn’t remove all of the out-of-pocket costs. Deductibles and co-payments, especially for costly surgical procedures and ongoing treatments, can add up quickly.
In the last decade, crowdfunding has become an option to help people struggling to pay medical bills. Here's where the practice stands in 2020.
What is crowdfunding?
Crowdfunding is a way to raise money from a large number of people, typically through an app or site such as GoFundMe.
The concept of raising money for medical expenses is not a new one. For years, communities have held bake sales, car washes, and other charity events to raise funds for a local family with major medical expenses. Local banks and churches have also collected donations after appeals went out on behalf of needy families.
The Internet made it easier for people to donate and expanded the pool of donors from a local region to the entire world.
The recent growth in crowdfunding
Around 2006 is when many of today’s platforms started to come online. Many of these sites are dedicated to soliciting investors for startup businesses or specific projects like movies or software.
Today there are hundreds of crowdfunding platforms. Some of the leading sites are Kickstarter, GoFundMe, Indiegogo, DonateKindly, Fundable, Patreon, and Charitable.
According to Statista, crowdfunding raises $17.2 billion annually in North America. That number is projected to grow 14.7 percent each year for the next four years.
The rise of medical crowdfunding
GoFundMe CEO Rob Solomon said in an interview last year that about one-third of all donations made on the site went toward health care expenses.
A recent survey by the National Opinion Research Center (NORC) at the University of Chicago found that an estimated 8 million Americans had started a medical crowdfunding campaign for themselves or someone in their household. More than 12 million had started a campaign for someone else.
Most medical crowdfunding donations go to friends, family, and acquaintances of the person making the gift. Yet 35 percent of survey respondents said they donated to a person they didn’t know.
One study found that 66.5 percent of all bankruptcies were tied to medical issues. This included outstanding medical bills and missed work due to a medical condition.
A 2018 study in the American Journal of Medicine found that about 42 percent of people diagnosed with cancer had depleted all of their assets and savings within two years.
Is crowdfunding the answer to medical debt?
Just as a new law didn’t solve the problem of medical debt, people are finding that crowdfunding is not a panacea for the issue, either.
One recent study of random medical crowdfunding campaigns showed that only 10 percent reached their monetary goal.
One issue, as previously noted, is the significant and increasing amount of competition for donors on a growing number of crowdsourcing platforms.
This makes “marketing” a person’s medical needs important. The success of a crowdfunding campaign is often influenced by a pair of factors.
One is exposure. Crowdfunding often requires a large number of donors to reach a campaign goal. That means people need to hear or read about the person’s needs. This is often done through social media sharing. Therefore, crowdfunding works best when the person in need has a large social media network. People who are not social media savvy or at least know somebody who is may not have as much success crowdfunding.
The other factor is how compelling the medical need is that’s being crowdfunded. People need to be moved to donate. This requires a persuasive story. The need itself must capture the attention of donors and be presented in a way that appeals to their emotions.
For example, who do you think most donors, without a personal interest, would donate money to:
- A young child with a rare disease whose parents can’t afford an organ transplant; or
- A middle-aged man struggling to pay the deductible on his emergency open-heart surgery?
It’s also been suggested that crowdfunding discriminates against the poor. Experts hypothesize that people who appear needier may appear less deserving. It may also be that a person’s medical needs are so great that people believe a small donation won’t be of much help.
Medical crowdfunding alternatives
Rather than depending on the government or the generosity of online donors, you can avoid the perils of medical debt with adequate insurance. Types of insurance you should consider include:
- Supplemental health insurance describes a type of insurance used to fill coverage holes left by a health insurance plan. There are several different types of supplemental insurance plans, many of which are targeted to specific health issues. It’s basically an added layer of protection to minimize the risk of incurring significant medical debt because of what your traditional health insurance does not cover.
- Disability insurance covers the potential loss of income caused by injury or illness. If you are unable to work because of a covered disability, the policy will replace part of your income. You will receive these benefits for as long as you’re disabled or up to a maximum period of time spelled out in the policy. Having long-term disability insurance means being able to buy food, pay bills, and cover household expenses while you’re unable to work.
- Critical illness insurance (CII) is designed to help people cover the cost of treating and recovering from expensive illnesses and procedures, such as heart attacks, strokes, and cancer. CII can pay for costs not covered by health insurance, such as deductibles and out-of-pocket costs. You can also use the funds for travel expenses and your regular bills. CII pays a lump sum benefit if you are diagnosed with a covered illness.
- Accident insurance is similar to critical illness insurance in that it pays out a one-time lump sum. However, in this case, payment is triggered if you experience a covered injury due to an accident, as opposed to a serious medical illness.
With the right combination of these types of coverage, you may be able to effectively plug the holes in your health insurance (and avoid medical crowdfunding).
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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