Medical expenses may be one of the biggest budget busters. Even with health insurance, there are deductibles that must be met. After the deductible you will still have coinsurance to pay, at least until you reach your annual out-of-pocket maximum.
Today’s insurance plans often have very high deductibles and out-of-pocket maximums. If you are having a terrible year, medically speaking, you can easily rack up several thousand dollars in out-of-pocket expenses. And for some, it can make meeting your other financial obligations difficult.
My go-to advice for expenses like these is to save ahead for them. Everyone gets sick from time to time, so you’re going to have some medical expenses. Saving up enough money to cover at least your deductible, will ensure you don’t have to adjust your monthly spending plan should a doctor’s bill come in.
If your healthcare plan offers a health savings account, put your healthcare savings there. Your employer may even help you by making a contribution to it as well. Contributions are made before tax and withdrawals for eligible medical expenses are tax free. The account is yours, so you don’t have to worry about spending all the money in the year you contribute, and you can continue to hold it or roll it over to a new provider if you are no longer with your current company.
However, if you’re worried you’ll have a significant expense before your savings are built up, there is a product that can help you. Supplemental health insurance can help you cover your deductibles, copays and coinsurance. You can add the coverage at any time. Whether it’s a good deal depends on the coverage you select and your core healthcare plan.
For example, a thirty-year-old woman could get a plan that will pay $7,500 if she were in an accident or came down with a critical illness for about $40 per month. That would cover most of the maximum out-of-pocket expenses under those circumstances for any healthcare plan. For broader coverage, that includes hospital stays, surgeries, and doctors visits, the same age person could pay $130 per month. Prices go up for older ages.
You would need to save much more than $130 per month, to have $7,500 set aside in a reasonable time frame. If you just saved the $130, it would take you nearly five years, and a lot can happen in that time.
If you are interested in a supplemental insurance plan, you can search online for policies available in your area by entering “metal gap insurance” in your search engine. Metal gap refers to the plan categories under the Affordable Care Act (bronze, silver, and gold). Before you buy a policy, pay attention to the details of the coverage. Make sure you understand what constitutes an “accident” or “critical illness”.
There are drawbacks to these plans. They are not subject to the same regulations as core healthcare plans. You can be denied coverage for pre-existing conditions. And if you develop a chronic condition, your coverage may not be renewed. Saving for your medical expenses will always be less expensive than paying for insurance. However, if you don’t have adequate savings now, a supplemental insurance plan may help keep your financial plans on track.
For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.