How to Budget for Healthcare Charges

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Budgeting for healthcare expenses is important for everyone, regardless of your health status or insurance coverage

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Healthcare costs can be a major financial burden, especially if you have unexpected medical expenses. Budgeting for healthcare can help you prepare for these costs and avoid going into debt.

Here are some tips on how to Budget for Healthcare Expenses

• Estimate your annual out-of-pocket healthcare costs. This includes things like co-pays, deductibles, prescriptions, dental work, vision care, etc. Review what you spent last year as a starting point.
• Divide that annual amount by the number of pay periods in a year to get a per-pay-period amount. For example, if your annual expenses are $2,400 and you are paid bi-weekly (26 pay periods), you would budget $92.31 per paycheck ($2,400 / 26).
• When setting your healthcare budget, be sure to account for any changes in healthcare expenses you may anticipate in the coming year, such as hitting your deductible, new prescriptions, braces, glasses, etc. Add a buffer for unexpected expenses.
• Review and adjust your contribution amount quarterly or as needed based on your actual expenses and any changes in your healthcare costs.

Here's an even simpler way to look at it: Take your annual out-of-pocket maximum for in-network doctors. Divide by 12. That's the monthly savings you should budget for healthcare.

The key is to estimate your total annual healthcare costs, divide by number of pay periods to get a per-pay period amount, and contribute that amount consistently to build savings for your healthcare expenses. Be sure to review and adjust as needed.

What else to consider on How to Budget for Healthcare Charges

• Add an emergency fund cushion. It's impossible to predict a sudden injury or illness, so add a buffer to your estimate. Aim to save at least an additional 20% of your expected health care expenses. This will help cover unexpected emergencies.
• Consider contributing to a dedicated healthcare savings account. An HSA allows you to contribute pre-tax dollars that can be used tax-free for qualified medical expenses. HSAs can be used in conjunction with a high deductible health plan to pay for those out-of-pocket costs you calculated above.
• Automate your savings. Set up automatic transfers from your paycheck into your HSA if you have one, and into a dedicated savings account for health expenses. Making regular contributions instead of a lump sum will help build savings faster.
• Review and adjust annually. Re-evaluate your estimated health expenses each year during open enrollment season and adjust your contributions accordingly. Life circumstances and health needs change over time.

Budgeting for healthcare expenses is important for everyone, regardless of your health status or insurance coverage. By following the tips above, you can create a plan that will help you prepare for unexpected costs and avoid financial hardship.

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