Budgeting for Your Health Plan
By Kathleen Monday November 10, 2017 No Comments
Whether it’s insurance premiums, deductibles, co-pays, prescription medication, or a wide range of other out-of-pocket expenses, health care now costs your average family a significant part of their income. Budgeting for each health care cost can seem overwhelming, but with some planning and dedication, you can make sure you and your family have enough funds for care.
Budgeting for Routine Expenses
Creating a budget that includes your routine insurance costs and out-of-pocket expenses is just like budgeting for any other item. If you get health insurance through your employer, your premiums are likely paid directly out of your paycheck, so your budgeting is done automatically. If your employer doesn’t automatically deduct premiums, you’ll need to include this line item in your own plan. In both cases, you’ll also need to include additional routine costs, including:
- Co-pays for prescriptions and doctor visits
- Dental and vision premiums
- Over-the-counter drugs
- Medical equipment
Even if you end up paying your complete deductible over the course of a year, you may be responsible for co-insurance payments. This type of health care cost can be hard to budget for, but a budget for unexpected costs is very important.
Why do you need to budget for unexpected health expenses? Isn’t the whole point of insurance to cover things like emergency visits and care for sudden illnesses? The unfortunate answer here is both yes and no. Health care plans vary widely in what they do and don’t cover as well as what percentage of things they cover, so it’s important for you to find out how comprehensive your plan is when creating your budget. If your plan looks like it has a lot of gaps, you might want to save up an emergency fund. This type of fund is commonly three to six months worth of living expenses or the maximum out-of-pocket payments for your health plan.
HSAs, HRAs, and FSAs
Health savings accounts allow you to put money away for health expenses tax free. There are three main types:
- Flexible spending accounts (FSA). Available only to people insured through their employer, this type of account helps you pay for health care expenses with pre-tax income and contributions are sometimes matched by employers.
- Health savings accounts (HSA). Used by people with high-deductible insurance plans, these accounts are funded with pre-tax income and can be rolled over from year to year.
- Health reimbursement arrangements (HRA). This is an employer benefit that provides funds for paying off deductibles and other out-of-pocket health expenses.
By using these types of accounts or arrangements, you can clearly budget for many out-of-pocket health cost items and potentially save thousands on taxes. Make sure to ask your employer which options they offer.
While creating a budget for your healthcare costs is important, don’t expect to be able to use the same budgeting plan year after year. With costs constantly changing, your expenses can change drastically and unexpectedly. Don’t hesitate to give Highpoint Advisors a call today for more information about budgeting for healthcare.
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