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Expect the Unexpected – How to Prepare for Hospital Expenses (Guest Post)

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.

Where is Mrs. Micah?


{ 2 trackbacks }

Guest Post at Mrs Micah! | I've Paid For This Twice Already...
March 14, 2008 at 11:42 am
The 2009 Personal Finance “How to” Roundup | AllFinancialMatters
July 6, 2009 at 2:29 pm

{ 7 comments… read them below or add one }

Alice March 14, 2008 at 9:04 am

Another reason to be glad I live in Canada…far, far fewer bankruptcies caused by medical bills.

Michael March 14, 2008 at 10:46 am

It’s better to avoid the hospital.

Canadian March 14, 2008 at 11:57 am

Yup, I’m so glad to be Canadian. Or British or French or pretty much any western country except one. (Seen Sicko?)

heartbeat March 14, 2008 at 11:58 am

i have medical care for life thru the military (husband is retired marine). it costs me $57. quarterly for mine and hubby is free after filing with medicare. all retired federal workers have this health insurance benefit…it works and it is really good care. the thing is, i and my husband paid for this healthcare benefit by serving our country…

Becky@FamilyandFinances March 14, 2008 at 12:51 pm

Good article.
I have an HSA and have been sticking a lot of money into it…mostly to prepare for probable oral surgery in two years. I’m also getting my braces federal tax free! (I’m in Wisconsin, one of only 5 states where the HSA isn’t state tax free. Grrr!)

Mrs Micah's Mom March 15, 2008 at 2:33 am

My medical bills are higher than our income for the year, and that’s without hospitalization. I am very, very grateful for insurance. I urge everyone to follow twicepaid’s advice to prepare, whether you prepare the same way she does or some other way.

Rodrigo Lagdameo March 20, 2008 at 8:17 pm

A Harvard study done in 2005 showed that medical bills caused half of the bankruptcies in 2001. 76% of those that filed because of medical bills acutally had health insurance. Supplemental insurance is great option that should be mentioned as a solution.

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