How to avoid and plan for unexpected health costs

For many people, avoiding the doctor’s office has almost nothing to do with fear or time constraints — and everything to do with the costs associated with a visit. In a time when healthcare is critical (looking at you, COVID-19), nearly half of U.S. adults say they or a family member put off or skipped regular health care needs or relied on an alternative treatment due to cost. That’s an epidemic in its own right.

On top of avoiding routine medical costs, 45% of Americans also avoid purchasing health insurance, simply because they think the monthly premium is too high. However, without regular care and insurance, an unexpected medical event can be a huge financial burden.

Just how expensive can a medical bill be? Read on to find out — and learn how to better prepare for them.

The unexpected costs of healthcare

You’ve heard that unexpected health costs are, well, costly. But how much are they, really? On average, without insurance:

A hospital cost averages $3,949 per day, with each stay averaging $15,734
A visit to the emergency room can cost anywhere from $150 to $3,000, not including tests, lab fees, and other services
The average cost of cancer surgery ranges from around $14,000 to over $39,000
Fixing a broken leg can cost up to $7,500

And with these figures in mind, many Americans are in a state of financial vulnerability. In May 2019, The Federal Reserve Board surveyed U.S. households about how they would pay for an unexpected (but hypothetical) expense of $400. Here’s what they found:

61% said they would pay with cash, savings, or a credit card to be paid off at the next statement
27% would borrow money or sell something
12% would not be able to cover the cost

No one plans to get hurt or get sick. But accidents happen — even to the healthiest of individuals. Plus, proactive and regular visits to the doctor can minimize costs in the long run. The best way to keep costs low and predictable is by enrolling in a health insurance plan.

The money-saving benefits of health insurance

If your employer does not offer health insurance benefits, if you choose to opt out of those benefits, or if you’re self-employed or unemployed, you can find a health plan through a Health Insurance Marketplace, or a platform that offers health insurance plans and information to individuals, families, or small businesses. Health insurance protects you from high and unexpected medical costs, reduces the costs for in-network care, and offers some free preventative care visits — even before you meet your deductible.

When you have coverage, your health insurance protects you from costly medical expenses by:

Reducing your costs. After you meet your deductible (or the amount you pay for healthcare services before your insurance starts to pay), your plan will typically cover a majority of your expenses. So, if your plan has a $1,000 deductible, you pay the first $1,000 in covered services for the year. After that, your plan will cover 60-90% of the expenses, and you pay the remaining percentage.
An out-of-pocket maximum. This is the maximum amount of money you’ll have to pay for your healthcare no matter how much you use your plan in a year. So, if your plan has a $1,000 deductible, it might also have a $3,000 out-of-pocket maximum — and once you pay $3,000, your plan will pay for any covered services for the rest of the year. These maximums vary by plan, so choose one that can best fit your budget. If you can’t afford to pay a medical bill and it becomes past due, it won’t directly affect your credit score — at first. After a while, your provider might eventually sell your debt to a collection agency. Having a collection account of an unpaid medical expense can strike a significant negative impact on your credit.

Knowing your deductible amount and out-of-pocket maximum is a great way to control how much money you spend on health-related costs — and also budget for them. Plus, these figures are different for every plan. You can choose a plan that best fits your lifestyle and how much you’re willing to spend, so there are no surprises.

And here’s a tip to save even more money with a health insurance plan: choose an in-network provider, which are providers that have contracted with your insurance company to accept discounted rates, for your care. You’ll pay far less for the same services than those from an out-of-network provider.

How to find the right health insurance plan

Finding health insurance can be pretty overwhelming. There’s a lot to consider, and tons of options. Begin by figuring out what you need, what you can afford, and what you think you’ll use. Here are a few quick tips to get you started:

Know how and when to enroll.
You can enroll in health insurance at any point in the year if you have experienced a qualifying event, such as getting married or having a baby. (For a full list of qualifying events, click here.) If not, you have to wait for the annual Open Enrollment Period. Your enrollment deadline and signup method depend on your primary home state, so don’t wait until the last second to pick your plan!
Always review your options.
Plans change annually, so it’s a good idea to keep up with what’s available. Take a little time to make sure you’re not overpaying or paying extra for coverage you don’t need.
Think about how much care you actually use in a year.
If you consider yourself to be pretty healthy, and don’t make many trips to the doctor in a calendar year, you might be comfortable with paying a lower monthly premium (with a higher deductible). Of course, there are always unknowns, but if something were to happen, your health insurance would be able to minimize those costs.
Where you get insurance matters.
Insurance costs are fixed by the carrier, meaning you don’t have to price-shop. Instead, focus on choosing an insurance company that has your back and stays with you long after you enroll.

Planning for healthcare costs big and small

Having a designated account just for health expenses can make budgeting easier. One great way to help with the costs of healthcare and to avoid medical debt is to build up an emergency savings account. You can do this through your community financial institution, a health savings account (HSA), or a flexible spending account (FSA).

HSAs and FSAs let you put money directly from your paycheck tax-free into an account used just for out-of-pocket healthcare costs. While this isn’t an exhaustive list (and approved expenses could vary by plan), here are some of the most common IRS-qualified medical expenses you can use your HSA or FSA dollars on.*

Acupuncture
Ambulance
Artificial limbs
Blood sugar test kits for diabetics
Chiropractor
Crutches
Dental treatments, including x-rays, cleanings, fillings, sealants, braces, and tooth removal
Doctor visits and co-pays
Drug prescriptions
Eyeglasses (Rx and reading)
Feminine hygiene products
Fertility treatments
Flu shots
Insulin
Laboratory fees
Medical alert bracelet
Midwife
Over-the-counter medicines and drugs (like allergy and sinus medicine, cold and flu medicine, ointments for cuts, burns, or rashes, and pain relievers)
Personal protective equipment (PPE), like masks and hand sanitizers
Speech therapy
Surgery (excluding cosmetic surgery)

Plus, some eligible dependent care expenses include:

Au pair services
Babysitting services
Before- and after-school programs
Custodial or eldercare expenses, either in-home or at a daycare center
Nursery school
Pre-kindergarten
Summer day camp (for programs not educational in nature)

With an HSA, you can contribute up to $3,600 for an individual and up to $7,200 for a family, and there are no use-it-or-lose-it policies in place. Typically, HSAs are offered with high-deductible plans to help offset the pre-deductible costs.

An FSA is slightly different and usually found with more traditional employer-based insurance plans. You can contribute up to $2,750 in 2021, but you must spend everything you put into the account within the calendar year.

No matter which option you choose, having a separate account for medical expenses — and the ability to contribute tax-free — can be a big help when it comes to saving and budgeting for your healthcare.

Health insurance is one of the most important things you can buy for you and your family to protect you from the unexpected (and rising) costs of healthcare.

*https://www.hsabank.com/hsabank/learning-center/irs-qualified-medical-expenses