Budgeting for Health Care

Budgeting for Health Care

One area of life that affects all of us at one time or another is Health Care. We will all need to see a Doctor from time to time and require other treatments or confinements that relate to a large amount of money. But questions come up: How much medical insurance do I need? What are the costs? What are my insurance options after retirement? What does Medicare cover? 

How we transfer this financial risk is through a health insurance policy. Here is where it gets complicated if you have to provide for your own health insurance. If you are in the category where you are directly responsible, you will want to think through your choices and do some back of the napkin math to determine what route is best for you.

First thing to examine is the monthly premium. Second, you will want to move on to the deductible (the amount you must pay before the company starts to pay). Third, you would move to the co-pays (another form of a deductible on some medical costs). Fourth, you will want to determine the maximum out of pocket and what your total out of pocket costs would become over for the next 12 months. Finally, take a look and determine what the worst-case scenario would cost.  

A template would look something like this.
 

Premium

Deductible

Co-Pay

Maximum Out of Pocket

Total Average Cost next 12 months

Worst-Case (Premium + Max Out of Pocket paid due to unforeseen circumstances;
Ex: surgeries, accidents)

$

$

$

$

$

$

 

 

After doing your comparisons of the different plans available in your area you will be able to make an informed decision.

Here we are at the mid-point of 2017 and premium notices with the increased rates are starting to come in. If you haven’t received yours yet you can expect it on your 12-month anniversary. The affordable care act was meant to tier the premium increases with the latter half of 2017 being the one that stings the most.

One option would be to create a health savings account or medical savings account, which is beneficial from an income tax standpoint. Making a deposit to your health savings account (pre-tax) and using that money for deductibles and co-pays allows you to buy a high deductible health insurance policy. Any money not used during the year can be kept in the health savings account for future expenses.

If you are on Medicare your choices are much simpler and less expensive but you will want to review your choice each year. The same process could be applied as in the template above for your Medicare supplement and your part D (prescription drug plan). This should be reviewed annually so you can choose the best option for the prescriptions you are currently taking.

From a political standpoint those hoping that the current majority party will bring some relief, I wouldn’t hold my breath since the health care problem is deep. The medical field is one of the only areas where we don’t know the cost of the service until after the fact. Until this is fixed, no government can regulate the companies that bear the risk of this unknown cost. All we can do until this unknown become a known number is to make the best choice for us one year at a time and transfer the financial risk for the lowest cost possible.

Cost of health care can be one of the most expensive areas in your budget. Unless you have this cost covered by an employer, you will want to use a process like this each year to help you budget for the next year.

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