Reclaim your health with us! This article helps you understand how much your full year healthcare costs are, and:
- How to make a personal healthcare budget
- What questions you should ask yourself about your healthcare for next year
- How to plan for likely and unexpected healthcare expenses
- What is an HSA or Health Savings Account?
Creating a personal healthcare budget:
Healthcare services are among the most expensive purchases we make, and can often be unanticipated and difficult to plan for. Most people go into a hospital stay or other care situation without knowing how much it will cost, and that financial worry is always in the back of their minds. The fear of financial hardship can even stop people from seeking care when they need it, delaying important treatment. It is possible to prepare for most healthcare emergencies and to have a financial plan in place. Anticipating healthcare costs is somewhat difficult, but there are some important steps you can take to protect your future financial health, without compromising your health today.
Healthcare budgeting is not taught, but is often learned “the hard way” by experience. You can be ready for most health events with some simple planning, which will give you a better understanding of what to expect in future medical bills, minimize the financial stress associated with medical bills, and protect your financial health, such as your credit score and overall budget.
A good time to create a healthcare budget is when you are purchasing health insurance, such as during the annual open enrollment period, or when you are starting a new job. This is the time in which you will typically need to select a level of coverage, and make other choices about spending and saving regarding your healthcare needs. Before you make any decisions, take the time to write down your known or likely expenses. Set up your list in three categories like this:
Now you are going to start filling in your information. Be as honest and accurate as possible - the more complete this information, the more accurate your medical budget will be.
Expected expenses: Monthly and annual
For most people, your regular, recurring medical expenses are more than you realize. Check how much you are spending monthly at the pharmacy on prescriptions and over-the-counter medication for every person who is a member of your household or who will be covered on your insurance plan. Next assess dental and eyecare needs. If you foresee a lot of dental work, new eyeglasses, or ongoing contact lens needs, add those costs up and estimate the total amount. Do you have routine screenings coming up such as gynecological exams, mammograms, or colonoscopies? It’s important to understand if your insurance would pay for the total cost of these screenings or if there will be a copay. Do you have a chronic condition that you have routine visits for, or requires routine lab work? Do you use a piece of medical equipment that might need replacing, such as a CPAP for sleep apnea with masks? Do you use diabetic testing strips? Do you have severe allergies that require seasonal injections? Are you currently using birth control or considering it for the future year? Spend some time adding up all these potential expenses and understanding what your entire list of healthcare expenses could be for the upcoming year.
Plan for likely expenses:
Do your children play sports? An injury or an ER visit at some point would not be a surprise. Does your child have asthma, or an allergy that requires an epi pen? Has your child been sick more frequently than most? Is there a probability that tonsils might need to come out soon? It is important to think about the likelihood that you will have enough expenses to use up your deductible and your maximum out-of-pocket allotment for the year. Believe it or not, this level of care is often the most expensive. An ER visit for a broken ankle, for example, with x rays included, could cost anywhere from $800- $3,000, followed by additional visits to an orthopedist and potentially a few visits with a physical therapist. These visits would likely all be billed separately, and include a lot of copays, which you would be paying the majority of the cost until you met your deductible. If something similar happens to another member of the family during the year, then you are looking at more copays until you meet your family out-of-pocket maximum for the year.
Unlikely expenses and major events:
These would be major hospitalizations, or life events. In this category, falls car accidents, cancer, major surgeries, caring for an elderly family member, and – having a baby! These times are the most expensive, and also the most stressful. Everyone experiences one of these major events at some point, and they can really derail your budget for a long time. At the same time that you are coping with treatment costs, you may be suffering a lack of income for an extended period as you recover. You may need to take time off work to care for a baby, or another dependent.
This is where the second half of healthcare planning is important. Time to make another list!
For every financially contributing adult in the household, assess your ability to be off work by looking at the three items below. If your job pays some sick leave or lets you accrue time, how much do you typically have? Do you save some? For example, do you always keep 2 weeks in the time bank, and then vacation on the rest? Or are you allowed to do that? Know what your “savings” is in this area if this benefit is available. If you or a household member is retired, self-employed, or part-time without benefits, then this will necessarily need to lean more heavily towards a savings plan.
Second, if you have a short-term disability policy, either provided by your employer or purchased separately, how long must you be sick before it begins to pay, and what percentage of your income would it cover, and for how long?
Next, consider other benefits like Health Savings Accounts or Flexible Spending Accounts. A Health Savings Account or HSA is an account where you can make tax-free deposits each year, allowing you to set aside money for medical expenses and enabling you to lower your federal income taxes. Deposits to your HSA are yours to withdraw at any time to pay for medical expenses including copayments, coinsurance, eyeglasses, contact lenses and more. Most FSA plans are only to be used within one year so please check the details of your plan as money sometimes can’t be rolled over into the following year.
The specific rules of these types of accounts differ, but they both use pre-tax contributions and can only be spent on healthcare-related expenses. In forming your health budget strategy, it will be important to have a mixture of money that is earmarked for health expenses, and some that can replace income if needed.