How to Plan Medical Expenses in your Budget


Health Insurance sounds like a great idea and the benefits are self-explanatory. It all sounds great from a distance but the problem, however, lies in actually having to plan your budget in a fashion that supports your decision of buying health insurance. Part of the problem is that more often than not, we are not familiar with the components of medical expenses. As long as you don’t understand the cost breakdown, it is next to impossible to effectively budget for health insurance. In the following article, therefore, we will inform you about the medical expenses as well as ways to plan your budget accordingly for health insurance.

The Fundamentals Of Medical Expenses

All medical expenses can primarily be divided into three major categories namely fixed monthly premiums, routine out of pocket expenses, and unexpected costs.

As the name suggests, the fixed monthly premium is a predetermined amount that you are liable to pay to your health insurance provider on a monthly basis in order for your insurance plan to keep you covered for the cost of healthcare. If you are health insurance is a benefit you are receiving from your work, the fixed monthly premium will automatically be deducted every month from your salary. However, if you have opted for private insurance, the premium will be paid from your bank account on a monthly basis. Since this is one cost that remains the same for every month, it is significantly more convenient for you to plan your budget for this medical expense.

The second prominent type of medical expense is that of routine out of pocket payments. Much like the fixed monthly premiums, it is fairly convenient to plan your budget for routine out of pocket payments as well since they are approximately the same for you on a yearly basis. The difference in this medical expense on a yearly basis is negligible to cast a dramatic disturbance in your budget. The routine out-of-pocket payments are required for preventative dental checkups or routine examination for eyesight etc. The prescription drugs that you are bound to take on a consistent basis are also included in this medical expense.

This brings us to the last and the most difficult of all medical expenses to budget for. Emergency healthcare services or an unforeseen surgery is covered by your insurance plan to some extent, however, the fraction of the medical bill that you are liable to pay under such circumstances can still be a shock to your financial planning.

Is There Something Else That I Need To Know?

For effective budgeting for the cost of healthcare, there are a few other expenses that you must take into consideration. For instance, a yearly deductible is the amount of money that you are required to pay for receiving the healthcare services that activates your insurance plan. After the deductible has been met, your insurance provider will start to share the medical expenses. Remember that you are still liable to pay a particular proportion of the medical expense after the deductible has been met which is known as the Coinsurance. It is only after the yearly out-of-pocket maximum has been reached that your insurance provider is liable to cover you for 100% of the medical expenses.

While buying health insurance, one must also keep it in mind that the yearly deductible/out-of-pocket max and monthly premium that you pay to the insurance provider are inversely related. The smaller the former, the greater will be the latter.

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Budgeting Effectively For The Medical Expenses

Now that you are familiar with the types of medical expenses that you are likely to be confronted with, you are in a much better position to start crafting an effective budget for your medical expenses.

To begin with, consider your fixed monthly premium and add that amount to the routine out-of-pocket expense. Now ask yourself if you have any plans of going through with an optional treatment or surgery. The Lasik eye surgery would be an impeccable example of it. If so, add the amount for such a treatment to the sum of the other two expenses as well. Whatever amount you get, divide it by 12 and you have the amount that you are required to set aside for your medical expenses on a monthly basis.

Another wise decision to keep yourself covered for medical expenses would be to open a separate savings account. Start saving money that is entirely dedicated to emergency healthcare expenditures. The first goal should be to have equivalent savings in this account as that of your yearly deductible. Afterward, the next goal should be to have equivalent savings as that of your yearly out-of-pocket maximum. After achieving this goal, you can choose to save at whatever pace you are comfortable with while making sure that every single penny in this account is dedicated for emergency healthcare costs only and is not spent on anything else at all.

Final Note

As evident from the aforementioned information, planning your budget to keep yourself covered for medical expenses isn’t as difficult as it may sound once you have an understanding of the cost breakdown. A word of caution, though. The cost of healthcare, as well as the coverage, is spelled by the rules and regulations for the state’s healthcare industry. In order to keep your budget effectively, you must keep yourself informed about the underlying laws.

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