Adulting. It’s a term us millennials use a lot. It encompasses all things — large and small — that makes us feel like fully functioning adults. When it comes to healthcare, adulting takes many different forms. Calling to make a doctor’s appointment? That's adulting. Buying insurance? That’s adulting too. Getting a yearly physical? Yup, adulting.
Budgeting for medical expenses (both expected and unexpected) is one of the most important things you can do as an adult. The high cost of healthcare in the U.S. is a major source of stress. Many Americans put off seeking medical attention due to cost — and that can have a significantly negative impact on their health. That’s why coming up with a plan to manage your medical expenses is so important. It can literally save your life.
Fortunately, budgeting for healthcare isn’t a complicated process. The first step is in understanding what types of medical expenses you might face during the year and then planning accordingly.
There are three main types of medical expenses. The first is fixed monthly premiums — or, those expense you can count on. These are the easiest expenses to budget for because they’re the same every month. Your fixed monthly premium is most likely going to be the monthly payment you make to your insurance company for coverage. These payments may be deducted from your paycheck (if you get health insurance through work), or they may come directly from your bank account if you purchase private insurance.
Routine out-of-pocket expenses are roughly the same from year to year. They may include prescription drugs you take on a regular basis, as well as preventative vision and dental appointments.
Unexpected costs, such as E.R. visits or emergency surgery, are the most difficult ones to budget. Though your insurance will cover some of the expense, you still may end up with a hefty bill you weren’t expecting. Despite being unable to predict these expenses, you can still plan for them by setting aside money for this particular type of rainy day.
Now that you know the three types of healthcare costs, it’s time to take a closer look at your health insurance. Besides your monthly premium, the following are all expenses you’ll want to identify and understand before planning your healthcare budget:
The deductible is the amount you have to pay in a given year for healthcare services before your insurance kicks in. This is likely one of the largest medical expenses you’ll have, especially if you have a high-deductible plan.
Your copay is the fixed dollar amount you pay for services and prescriptions. Though this is a smallercost, it counts toward your deductible and does add up over time.
Co-insurance is the percentage you have to pay for medical services, like an emergency room visit, even after the deductible has been met.
Your out-of-pocket max is the most you’ll have to pay for healthcare in a given year before insurance covers 100 percent of the cost. It’s usually significantly a far higher amount than your deductible.
Thanks to the Affordable Care Act, there are certain services that your insurance is required to cover at 100 percent (as long as you’re in-network) whether you’ve met your deductible or not. These exceptions are preventive care services, such as well-child visits and your annual physical.
Budgeting for Healthcare
Once you know what your premium, deductible, copay/coinsurance, and out-of-pocket max are, you can determine how much to set aside for healthcare each year. It’s time to create your budget!
Start by adding your fixed premium and your routine out-of-pocket expenses. Then, consider your anticipated costs, such as a planned elective procedures (lasik, joint replacement, etc.). Add this to the sum of your fixed premium and routine expenses. Take the total and divide it into 12 chunks. Save that amount each month.
Next, establish a clear-cut savings goal for your medical emergency fund (aka the unexpected costs). A good goal to start with is saving enough to cover your deductible. Once you reach this goal, don’t stop! Keep going until you’ve set aside enough money to meet your health plan's annual out-of-pocket maximum. Finally, don’t be tempted to use the money in this account for anything other than emergency medical expenses. If you end up needing it and it’s gone, you’ll be one sorry person.
It is important to note that each year brings new laws and legislation surrounding healthcare, impacting both cost and coverage, so you’ll need to keep up to date in order to stay on top of things.
The Part We Don’t Like to Talk About
Even the oldest millennials are still relatively young. This makes discussing death and funeral expenses seem particularly morbid — but that doesn’t mean it’s not a necessary conversation to have. The last thing you want to do is pass away and leave your loved ones with a heavy financial burden and no discernible way to lift it.
Average burial costs in the US are $7,000-$10,000, while average cremation costs are $1,500-$5,000. These costs can include fees for professional services, embalming, memorial packages, and caskets or urns. The exact cost for your funeral expense may be lower or higher, based on where you live and how elaborate the funeral services are. Choosing a direct cremation or burial can help lower the costs dramatically.
Even if you have life insurance (which you should, by the way), it can take a month or longer before the policy pays out. That’s why it’s imperative that you set aside money monthly for funeral costs. It doesn’t have to be much, especially when you’re already working hard on saving your emergency medical fund, but every little penny counts.
Being an adult is expensive, there’s no doubt about it. But setting aside money each month for your healthcare needs, not to mention preparing for medical emergencies and funeral costs, can leave you feeling a lot less worried about the future. Happy saving!
About the Author:
Liz Greene is a makeup loving, dog hugging, anxiety-ridden realist from the gorgeous City of Trees, Boise, Idaho. You can follow her on Twitter @LizVGreene or catch her latest misadventures on her blog, Instant Lo.
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