This is a guest post by paidtwice of I’ve Paid for this Twice Already. She was one of my early PF blogging inspirations and has paid down thousands of dollars in debt by snowballing and snowflaking her way out. If you like what you see today are aren’t one of the thousand-plus people who gets her daily feed, why not subscribe now?
Medical bills and associated costs account for a huge percentage of the bankruptcies in the US every year. Medical costs are largely unexpected expenses, and can really throw a wrench into anyone’s budget or plans.
Just like any other unexpected expenses, there are some ways you can prepare yourself to deal with a medical crisis from a financial standpoint, so you aren’t trying to figure it out while in the throes of the usually emotionally and physically draining ordeal.
1. Insurance, Insurance, Insurance
You need insurance. Health insurance, life insurance, disability insurance – most likely, you need them all. Determining the specifics of your policies and what works best for your unique situation is up to you, but medical bills can be frighteningly high for one simple procedure.
A trip to the ER in the middle of the night with my 1 year old son who was screaming and crying inconsolably, and turned out to just be a stomachache, would have cost us hundreds and hundreds of dollars before insurance. And that was for no blood tests and obviously an outpatient visit.
Even with insurance, medical expenses can be catastrophic, but without any insurance at all you may be one accident away from financial ruin.
2. Know your limits – policy limits, that is
There are many many insurance plans out there and all of them differ. You need to know the details of your own plan before you can come up with concrete ideas for how to prepare for if you need to use it.
Do you have a deductible? How much is it? Are there different deductibles for families versus individuals? Is there an out-of-pocket limit per year on your policy? What is it? Are there specific procedures or classes of procedures that are not covered or excluded? Do you know what doctors your plan allows you to visit, and when you need preapproval?
Knowing these facts can help you plan for the next step.
3. Have a medical savings fund of some sort
Now that you have insurance and you have the knowledge about your specific plan limitations, you can start to plan for if you need to use it. There are many health care savings accounts out there, from FSA (Flexible Spending Account) to HSA (Health Savings Account) to just using a traditional savings account of your own.
Learn what options you have – an FSA is usually provided through an employer and saves money pre-tax, but if you don’t use it in that plan year, you lose it, and an HSA is usually tied to a high deductible insurance plan and money can carry over year to year, for example.
Whatever choices you make, I cannot recommend more the idea of having your entire deductible, or even better your entire yearly out of pocket cost if possible, saved in some form at all times. Some plans have no out of pocket maximum, which would make that impossible, in which case increasing your savings year to year is a safer bet than hoping nothing will ever happen to you or your family.
Overall, the best way to combat unexpected medical expenses is to treat them like an expected expense. Hopefully, you’ll never have to use the money you save for this type of expense, but if you do, you’ll be financially prepared for it.
As for us right now, we have our deductible saved in a higher-interest savings account, as well as money saved in an FSA that we reimburse ourselves from as medical expenses come in throughout the year. The combination of these two things brings us very close to our out-of-pocket maximum for a year, in case something was to happen to a member of our family that required immediate medical attention.
Awareness is the first step, a plan is the next, and execution ties it all together. Don’t be caught completely unprepared by a medical emergency – start planning now.