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Planning for Health Expenses

How to budget for one of life’s biggest expenses

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PLAN FOR HEALTH EXPENSES

Health Care Planning Basics

Health care is expensive, and it only increases each year. In fact, after housing and transportation, personal health care is the third largest expense for most Americans. According to the CDC, personal health care expenses rose over 30% from 2009 to 2019. How can you plan for these mounting costs without a mortgage refinance calculator? We can help with that question and more.

Health Care Planning FAQs

There are three primary medical costs: monthly insurance premiums, out-of-pockets and unanticipated. Because they’re fixed, monthly premiums are easy to budget for. Out-of-pocket costs range from prescription maintenance medications to preventive dental and vision care. Unexpected costs are those you can’t predict, like injuries or accidents that require emergency health care.

Monthly insurance premiums in affordable plans can run as high as 10 percent of monthly household net income (less for individuals, more for families). Out-of-pocket costs typically account for 5 to 7 percent. While you can’t predict emergency health care costs, you can put money away to cover them.

Start by adding your monthly insurance premiums and out-of-pockets to estimate your annual cost. Then determine how much you can afford to save for unanticipated expenses. What’s the best savings account for those funds? A health savings account (HSA), because you can save for qualified medical expenses on a pre-tax basis and make withdrawals tax-free. You can use your HSA for copayments and deductibles too, including payments for high-deductible health plans. And since unused HSA funds roll over each year, you can use them to cover future medical expenses – even in retirement.

Longer life expectancies and high health care inflation have escalated the cost of health care in retirement. To help save for health care expenses later in life, consider boosting monthly contributions to your HSA. Once you turn 65, there’s no penalty to withdraw those funds and you can use them for both medical and non-medical expenses.