The Importance of Budgeting for Healthcare Costs

It is important to budget for unexpected health care costs due to an accident or illness. Research these three key factors to consider so you know how much to save.

Although healthcare costs can be unpredictable, it is still important to budget for them. By having money set aside for treatment, you will be better prepared to pay for unexpected medical costs if you have an accident or illness.

On average, healthcare costs account for around 8% of annual spending for a household. The actual cost for a family varies though. Research the following to help you prepare for unexpected healthcare costs:

1. Your share of the cost for different types of care covered by your plan.
2. In-network facilities and providers near you.
3. Scenarios based on your family history and lifestyle.

Know Your Cost Shares for Healthcare

Health insurance plans have one or more types of payments you make when you receive care. Knowing what types of cost-sharing payments your plan includes and how they work can help you with healthcare budgeting.

Key terminology includes:

• Deductible: The total amount you will pay for healthcare services before your plan starts paying for a portion of the bill.
• Copayment: A fixed amount that you pay for a doctor visit or medical service.
• Coinsurance: A percentage of the total bill for care that you pay. The amount can be difficult to calculate in advance, since you usually don’t know what the charges are until after you get care. You can ask for an estimate before receiving certain types of care.
• Out-of-pocket maximum: A “cap” on the amount you pay for care that is covered by your policy. It includes what you have paid for your deductible plus all copays and coinsurance payments.

Figure out if your plan has copays, coinsurance, or both depending on the type of care you may need. Some plans include a copay as well as a coinsurance percentage of the bill for certain services.

It is also helpful to know what is not covered by your plan, known as exclusions. If you get treatment or items that are excluded, you will pay full price for them, and they do not count toward your out-of-pocket maximum.

You can find information about cost shares and exclusions on your plan’s Summary of Benefits and Coverage.

Find Nearby In-network Doctors and Facilities

Most injuries happen within 10 miles of home. With that in mind, it pays to know where you can get in-network care near where you live.

Urgent care facilities and freestanding emergency rooms, which are separate from a hospital, have popped up all over the country. Although most accept insurance, that does not necessarily mean that they are part of your plan’s network.

If you receive care at a facility that is not in your plan’s network, you will pay more. So, research which nearby facilities are in-network.

An urgent care visit is usually far less expensive than going to the emergency room. Get familiar with what situations are appropriate for urgent care and when you should go to the ER.

In an emergency you may not have a choice of where to go, but it is still good to know which hospitals are in-network too in case you can decide.

If you need unexpected care but have some time to plan ahead, consider comparing costs at different in-network providers. You may be surprised by the cost differences. If your plan has coinsurance cost sharing, these differences will impact your out-of-pocket cost.

Consider Some Scenarios

Although some accidents and illnesses are completely unexpected, you may be able to anticipate others based on your lifestyle and family history.

For example, if you play sports, you may want to get an idea of how much it may cost to fix a sprain or broken bone.

Genetics are also a factor to consider. Are there illnesses or conditions that run in your family? Research your family medical history. This can help you think about what care and costs you may face if you are diagnosed with one of them.

Saving Money for Healthcare

You can consider several options for setting aside money to pay for unexpected medical costs. You can set up a traditional savings account through your financial institution, or you may be able to set up a healthcare spending account.

Start by putting aside enough for your deductible if you do not have savings to cover it. If you have predictable care expenses, like regular medications or periodic doctor visits, save for those too. Then build up your reserves to get up to your out-of-pocket maximum, if possible. When you can cover your out-of-pocket maximum, you will be able to weather most healthcare costs.

Unexpected healthcare costs can be stressful. But by doing research and planning ahead, you can budget for them appropriately. Then, you will be able to focus on the most important thing, your health.