Creating a Healthcare Budget For Emergencies
Submitted by Health Karma, April 2021
Imagine: You’re on your way to work one Tuesday, and suddenly your entire world is knocked sideways. A driver who had been texting T-boned your car. An ambulance whisks you away because you need immediate surgery for a collapsed lung.
After staying in the hospital for two nights, the doctors release you to go home. You might be ready to put this painful experience behind you, but your financial recovery will be far more complicated than your physical recovery.
Since you’re not privy to the intricacies of healthcare, you don’t consider what options are available to help you manage your medical expenses. This costs you. Significantly.
Three weeks later, the first bill arrives: a whopping $1,500 for the ambulance. Instead of questioning that bill, you dip into your savings. A few more weeks pass, and you receive a $10,000 bill for the surgical work you received. Suddenly, you’ve wiped out your savings. Seven weeks later, you get another $6,500 bill for your two nights in the hospital. To pay this one, you have to take out a loan.
One year and $18,000 later, you’re still trying to recover your credit score (which plummeted) and replenish your savings (which you spent years building). A whole host of financial burdens stem from that one unfortunate Tuesday morning.
Healthcare Budget Planning Misconceptions
There are many misunderstandings about the need to budget for medical expenses, and low health literacy is typically the culprit. Many people think they don’t need to budget for emergency healthcare costs if they have insurance, but that’s not true. Even expensive insurance plans with excellent coverage can leave their policyholders in debt.
Insurance is not a blank check for healthcare expenses — it’s a qualified and highly conditional cost-sharing service. One study found that about 62% of all bankruptcy claims in the U.S. were related to incurred medical expenses. To avoid future financial burdens, it’s critical to understand the value and importance of healthcare budget planning.
Another misconception: Many people assume a provider accepting their insurance is the same as being covered. All too often, the confusion over in-network vs. out-of-network results in bills that patients never expect to receive.
In-network vs. out-of-network costs can differ significantly. Out-of-network care providers will bill your insurance for the service first and then charge you for the remaining balance. Even if you have insurance, it’s always necessary to budget for healthcare expenses.
How to Manage Healthcare Costs
Many people budget for medical expenses based on what they think might come due. The better move is identifying likely costs based on your medical history and previous healthcare needs. After determining what care you might need, you can do some digging to see what’s covered by your insurance.
If you don’t prioritize healthcare budget planning, you’ll likely be unprepared for future medical expenses. Considering today’s rising healthcare costs, this can be a recipe for trouble. To manage your risks effectively, follow these three tips:
1. Identify expenses. You’ll need to take stock of your healthcare expenses the same way you might budget for rent and food. Small costs add up, so give yourself a baseline and make saving a routine. Try sorting your expenses into three common categories:
- Fixed Premium: This is your recurring monthly cost for coverage.
- Routine: While there may be some fluctuation, the cost of copays, annual checkups, and regular prescriptions are things you can easily include in your budget.
- Unexpected: Emergency room visits aren’t predictable, but you can still find estimates for particular services.
It also helps to consider possible changes on the horizon. For example, are you starting a family? Do you have health issues you have yet to address? Foresight is the name of the game.
2. Budget your costs. After you know what your expenses are (or might be), you’ll need to determine how much money you can realistically set aside each month. It might be tempting to skip, but this critical step can help you avoid running into issues down the road.
3. Build an emergency fund. This is essential for weathering crises financially. Aim to set aside three to six months of living expenses so you can handle unexpected costs without having to take on debt or drain your savings.
One surefire way to ensure you have adequate funding regardless of what life throws at you is to save up enough to cover your out-of-pocket maximum. While this takes time, it will give you all the buffer you need.
Healthcare budget planning is a long-term consideration. There will be rainy days, but the best way to get past them is to save up ahead of time. And when the unexpected eventually happens, you’ll have everything you need to weather the accompanying storm.
Content retrieved from: https://blog.healthkarma.org/creating-a-healthcare-budget-for-emergencies?page=3.