Healthcare expenses are climbing at staggering rates in the U.S. Experts believe the total cost of healthcare over the next decade will grow faster than the economy, accounting for one-fifth of the total economy by 2033.
The U.S. Census estimated in 2023 that soon, one in five U.S. residents will be a senior citizen. As American citizens age, their medical needs will only expand, and there may be issues that their insurance will not cover.
In this post, we’ll examine what healthcare expenses you might expect to arise in your lifetime. We’ll also look into some strategies for saving and budgeting for healthcare needs.
Estimating Healthcare Expenses
Healthcare expenses are rather complicated, even if they’re for relatively minor health issues.
Along with regular payments for insurance premiums, a patient may face out-of-pocket copayments and deductibles as their policy dictates. They could be on the hook for medication, extended hospital stays, visits to specialists, and preventive care that insurance won’t cover.
It’s a good idea to make a rough estimate of what you might need for healthcare in the future. If you’ve kept expense records, take a look at the last few years of your medical spending. Benefits statements, pharmacy receipts, and doctors’ bills are particularly helpful.
Determine what expenses are recurring, like prescriptions and physical therapy, and which are one-time or previously unexpected expenses, like emergency room visits.
Several brokerages and financial institutions offer online calculators for estimating future healthcare costs. The KFF’s Health Insurance Marketplace Calculator is another tool you can use. Try to project your health expenses five to ten years in the future, and remember to account for potential inflation.
Set Up an Emergency Fund
One common recommendation financial experts make for all investors is to start a savings or investment account strictly for emergency funds. Optimally, it should have enough money to cover three to six months of expenses. The fund can be used as a buffer against unexpectedly high medical costs.
Accumulating interest will add to your fund. You can also make monthly contributions to it yourself — even just $50 every month can help. This step is much easier when you set up automated deposits every month. If you receive a windfall like an annual bonus, tax refund, or side income, consider applying it to the emergency fund.
Open a Health Savings Account
Health savings accounts (HSAs) were created for people in high-deductible health plans (HDHPs). Funds contributed to HSAs can grow and be withdrawn tax-free to pay for expenses. HSA funds roll over every year as well, so they can be a cornerstone for your long-term healthcare plan through compound growth.
Many employers offer flexible spending accounts (FSAs), which use pre-tax contributions to account for out-of-pocket medical expenses. However, unlike HSAs, most FSAs do not roll over to future years. This means you’ll have to spend FSA funds within a certain timeline (usually a year) or risk losing the money.
Look Into Your Health Insurance Options
You have a few options for health insurance plans that may fit your needs. HDHPs offer lower premiums but higher out-of-pocket deductibles.
Preferred provider organizations (PPOs) have more moderate premiums and deductibles and can give you more choices for healthcare providers.
Health maintenance organizations (HMOs) have lower premiums and deductibles, but the insured is usually restricted to in-network providers and needs referrals if they need to see specialists.
To budget health insurance costs effectively, take time to evaluate what healthcare needs you and your family are likely to have in the future — especially pending surgeries and chronic conditions.
Get to know what providers are in the plan’s network. Compare premiums, deductibles, and coverage scopes between your insurance options.
Review Government Programs
The Affordable Care Act, as it now stands, helps families with limited income afford medical care through tax credits and cost-sharing reductions.
Those who are near retirement should also review the elements of Medicare, a program for people over 65 and disabled individuals. Medicaid is another government program for patients with restricted income.
To see if you are eligible for these programs, check with the NC Medicaid Contact Center, the North Carolina Department of Insurance, the Centers for Medicare and Medicaid Services, or the Social Security Administration.
Good Life: Experienced Advisors for Your Healthcare Budget
Good Life helps individuals in North Carolina build budgets for healthcare and other expenses. Our consultants also offer solid advice on retirement plans, investments, tax planning, and debt management. Contact us online to set up an initial visit.