It always makes sense to plan for the costs that may be coming your way — and how to pay for them. Why not make a budget to plan for your healthcare costs?
One reason people may hesitate is that healthcare is less predictable than other costs, such as groceries and utilities. You can’t know ahead of time whether someone in your family will break a leg or whether a chronic illness will worsen. But, if you have health insurance, the costs can be somewhat more predictable.
Tip #1: Fixed Cost
You know what your premium will be — or your share of the premium, if your employer contributes part. That’s the charge (often monthly) for maintaining your health insurance. If you get health insurance through your job, you may have this charge automatically deducted from your paycheck. That’s the fixed cost aspect of your healthcare budget.
Tip #2: Routine Costs
Next, you can estimate based on previous years the routine costs you’ll have to pay. You and your family members probably average a certain number of doctor visits and pharmacy expenses per year. List those in your healthcare budget. If you or a family member have a chronic illness, you may have regular doctor visits, lab tests and prescription medicines related to that illness. List those in your healthcare budget, too.
When listing costs, only include what you’ll pay out of pocket. That’ll vary according to your type of health plan. Suppose you have a plan with a high deductible, which is the amount the insurer requires you to pay before it contributes a share of the costs. In that case, you may pay for all or most of those routine costs out of pocket. If you have a low- or no-deductible plan, you may be responsible only for a copay or coinsurance. A copay is the fixed dollar amount you pay for each doctor visit or other service. Coinsurance is the percentage you pay of covered healthcare costs.
Tip #3: Expected Procedures
You may know in advance that this year you’ll undergo a certain medical or dental procedure, such as childbirth, a dental bridge or knee surgery. Try to find out from your doctors, hospital and insurer what your out-of-pocket cost for the procedure(s) will be. If you know that you’ll need to go out of network, you can estimate your costs using web-based health care cost estimation tools to look up the typical charge in your geographic area for the procedure you’re considering. Then you can add those costs to your budget. That takes care of your expected costs.
Tip #4: Unexpected Costs
In addition to your expected costs, something unexpected might happen this year. It might be a major accident that sends you to the emergency room. It might be a diagnosis of a serious illness. By definition, you can’t predict what such events will be or what they’ll cost. But, you can try to put money aside each year into an emergency fund to protect you just in case the unexpected happens.
Tip #5: Paying for Healthcare
Now that you know what you can expect to pay in healthcare costs this year, and are planning to set aside something for the unexpected, you can determine where you’ll get the money. In most cases, it’ll come from your income or savings. High medical bills may force you to borrow money. But, of course, you want to prevent that if possible, so you don’t go into debt.
Fortunately, there are two ways you can improve your budgetary situation. One is by controlling your costs so you spend less. Another way is by making use of tax-advantaged accounts that let you stretch your healthcare dollars. See our FH Health Insurance 101 article on Flexible Spending Plans.
Budgeting for healthcare will put you in more secure control of your expenses. That alone may make you feel healthier.
Robin Gelburd, JD, is the president of FAIR Health, a national, independent nonprofit with the mission of bringing transparency to healthcare costs and insurance reimbursement. FAIR Health oversees the nation’s largest repository of private healthcare claims data, comprising over 22 billion billed medical and dental charges that reflect the claims experience of over 150 million privately insured Americans. Follow on twitter @FAIRHealth