Budgeting for Medical Expenses

It’s a sad reality that medical expenses are one of the biggest threats to your financial wellbeing. An unexpected illness or serious accident could do more than just land you in the hospital—it could rob you of your savings. 

Even if you have health insurance, you’re not necessarily protected financially. High-deductible plans are exceedingly common, and while they may take less out of your paycheck they can also leave you in precarious financial situations should a health emergency arise.

Here are some startling reminders about the financial dangers of the current health system, and what you can do to help protect yourself from medical-related financial crises.

Watch Out for Hidden Conditions  

One of the many benefits of 2010’s Affordable Care Act was the elimination of health insurance companies denying coverage because of a pre-existing condition. Or at least that’s what we thought. The truth is that the insurance companies still have the ability to reject a person’s coverage based on “hidden” pre-existing conditions.

Sounds pretty rotten, right? Well, yes, but in terms of health insurance in the United States, it could be a lot worse. Most pre-existing conditions are covered, and it’s only a few that fall into the “hidden” category. For example…

  • A plan provides for diabetes treatments without approval of a treatment plan. However, if you were diagnosed with diabetes before your coverage started, your coverage will require approval of your treatment plan. So you’ll still be covered, there’s just a little additional work to do.
  • You become eligible for health benefits when coverage begins under the group health plan. However, you must be covered under the plan for at least 12 months before it will cover costs associated with a pregnancy. Again, you can still get the coverage needed, it just has some additional concerns around it.
  • Your new health plan covers surgery for injuries, but only if the injury occurred while you were part of the plan. This is one of the most common types of “hidden” pre-existing conditions, to the point where many people may not have even thought of it as denying coverage based on a pre-existing condition.

So what does all this have to do with your finances? Well, healthcare costs are one of the biggest dangers to the average American savings account. If you require costly treatments and your insurance company won’t cover the costs, you could suddenly find yourself choosing between bankruptcy and your health.

Saving For a Rainy Day

Until something changes in the political landscape and we join the rest of the civilized world in having government-supported healthcare, the best option you have as a US citizen is to include an emergency healthcare budget in your financial planning.

To do this, you need to consider the different types of medical expenses you carry in your life. 

  • Recurring costs should be one part of your budget, including ongoing prescriptions, standard supplies like contact lenses, and similar. 
  • Copays and deductibles will probably make up the majority of your budget. You’ll need to investigate your healthcare plan and see what its maximum annual out-of-pocket payment is, then be sure you carry at least that much in your savings account at all times.
  • Emergency expenses. This is the big one—the “worst-case scenario” savings that you hope you’ll never have to use. Having enough money saved up to cover your maximum annual out-of-pocket expense will help mitigate this, but what happens when that’s all gone? That’s where this money comes in.

If all that seems like too much, there is another option as well—the Medicaid system provides a little safety net for those in need. However there are strict requirements around who qualifies for Medicaid, and it may not be possible for you to receive the benefits. These requirements vary by state—you can read more about New York state’s medicaid requirements here

It’s no big secret that saving money is the key to a stable future, but sometimes it’s surprising just how much money you need to put away to properly prepare. Factoring emergency medical costs (and even not-so-emergency medical costs) into your savings is an important piece of protecting yourself against worst-case scenarios.