Adding It Up
Tallying your annual health care expenses puts you in a better position to manage them.
How to budget for next year’s health care costs
We know budgeting isn’t the most exciting activity. But taking time to crunch the numbers once a year puts you in the driver’s seat of your health care spending and has the potential to translate to major savings.
“With the rising cost of care, understanding your potential out-of-pocket cost is important,” says Carolyn McClanahan, M.D., CFP, a physician and certified financial planner with Life Planning Partners in Jacksonville, Florida. It can help you avoid sticker shock and ensure you have the funds to get the care you need, she adds. So find some time, grab a pen and paper, and follow these steps to take a look at the year ahead. Your first step is to get a sense of your estimated annual expenses. What you’ve spent in previous years can guide you, says Melanie Teslik, M.S., RN, BC-ADM, CDE, a diabetes nurse educator at NYU Winthrop Hospital in Mineola, New York. Gather your past year’s worth of statements from your insurance company, bank, and credit cards. Look at your insurance plan to see if you met your deductible. Then total the following categories to get an estimate of your yearly spending.
1. INSURANCE COSTS
Multiply your monthly premium (the amount you pay each month to have insurance) by 12 to get your yearly cost. Add to that your deductible (the amount you must meet before your plan kicks in). Also note your out-of-pocket maximum (the most you’ll have to spend each year) as well as your copayments (set amounts you pay per medical visit) or coinsurance (your share of a bill).
2. DOCTOR’S VISITS
Tally them—say, four to your family doctor or endocrinologist, one to the ophthalmologist, one to a nephrologist or cardiologist. Estimate the cost based on your deductible and, after you’ve spent that amount, your copayment or coinsurance for each visit.
3. PRESCRIPTION & OVERTHE-COUNTER DRUGS
Ask your pharmacist for a printout of your medication expenses from the past two or three years to get a sense of which direction costs are headed, recommends
Diabetic Living advisor Marty Irons, RPh. Then look at what you expect to need this year. Be sure you understand what’s covered under your 2019 plan—doughnut holes and all—so you’re not blindsided by changes in coverage, adds Irons.
4. PLANNED PROCEDURES
If you’re scheduling any onetime procedures, such as cataract surgery, add in those costs. Call your doctor’s office or hospital to get an estimate.
This category includes your insulin pump, glucometer, and lancets. It also includes any other health supplies, such as shoe inserts, bandages, hearing aid batteries, and saline solution for contacts. Check your plan details to see what your insurance will cover—for example, your plan might only cover a limited number of blood sugar test strips, Teslik says. And check the list of eligible expenses for your FSA (flexible savings account) or health savings account (HSA) to make sure you factor in all costs. (Be aware: unspent FSA funds may be lost at the end of the year—so stock up by your deadline!) Once you’ve found your estimated yearly total, follow these steps to create a savings plan.
1. DIVIDE YOUR YEARLY TOTAL BY 12
This can give you a ballpark idea of what you will be spending (and should be saving for) each month. Note that you might spend more in some months (for instance, January through March, before you meet your deductible). Accounting for this can help you know when you’ll need cash on hand to cover these extra expenses.
2. LOOK AT YOUR CASH FLOW AND SAVINGS
Do you have enough cash on hand to set aside your full yearly total? Can you also set aside some extra to cover emergencies? If you can’t set this aside all at once (many people can’t), look at how you will cover your expenses each month. How much of your monthly expenses will you cover with your income and how much with savings?
If you want to work toward a long-term savings goal, McClanahan suggests aiming to save about one year’s worth of your out-of-pocket maximum. Of course, that isn’t always possible—but working to save what you can while reducing expenses ( see box, right, for ideas) still leaves you in a better position financially.
3. STASH THIS CASH IN YOUR HSA OR FSA, IF YOU HAVE ONE
These accounts let you pay for health expenses pre-tax. Depending on where you live, this could help you save around 25 percent in potential taxes, says Scott Riordan, vice president of health & welfare services at Sentinel Benefits & Financial Group in Wakefield, Massachusetts. No FSA or HSA? Use a separate savings account or money-market account.
4. CONSIDER WHETHER YOUR CURRENT HEALTH PLAN
Finally, look at all your insurance options. Would you pay less overall if you switched to a higher-deductible or lower-deductible plan? If you have Medicare, does a supplement or Medicare Advantage plan make sense? If you need some help, ask your doctor, a certified diabetes educator, or a certified financial planner to help you evaluate your options.
Deductibles can make estimating a yearly total tricky. You’ll likely need to count the total cost of office visits, procedures, and prescriptions before you meet your deductible. After your deductible, you’ll only need to count your copay or coinsurance.