Medical expenses can be very expensive, unpredictable and a pain to know how to budget. But, have no fear. I am going to explain to you how to budget for those medical expenses.
Did you know that medical costs are the number one cause of bankruptcy? Well, I do not want that to happen to you. Here is a quick primer for how I budget medical costs.
First of all, costs are ridiculous and unpredictable. Not to mention, doctors don't charge a consistent amount for services. One general practitioner could charge significantly more than another for the same exact thing. Now, it is important to understand, you are not going to be able to nail this the first time. It is going to be a ballpark number; however, it’s better than having no clue and waiting for the bill to come. So, focus on being proactive, not perfect.
This is also known as a "summary of benefits and coverage". With this summary, you are going to know exactly what your chosen plan covers. A guide can usually be obtained from your HR department. It will tell you exactly what is covered and what has a deductible, providing a breakdown of every kind of care you may want or need. Start here. The guide will provide you a base cost of out of pocket fees (deductible + additional costs). In terms of the additional costs, sometimes they are a percentage ("co-insurance") or a flat fee ("co-pay").
This stands for “Explanation of Benefits.” Now, you should receive these documents from your insurance company after you have received a service. Most commonly, it is sent prior to being billed for a service—almost like a summary of services received. When looking at the breakdown, you may see the cost the doctor is charging ("billed amount") and then a section stating “negotiated or allowed” amount. Allowed amounts are the negotiated rate between the provider and the insurance company. Next, there will typically be a column that defines what is not covered by your plan, followed by what you owe based on your deductible amount if applicable and any additional co-pay or co-insurance. When it comes down to it, it’s just a complicated, mathematical breakdown. That’s why it is so important to know, in advance, what benefits are covered by your plan!
Looking at your Benefits Coverage Guide isn’t enough. When planning for medical expenses, you also need to look at past bills. EOBs can fulfill this but they aren't always available or enough information. Like we discussed previously, it is important to understand the breakdown so you have a numerical frame of reference for your medical costs. For example, a previous wellness check may have cost $135 and your insurance may have covered $108. Knowing those numbers enables you to budget for that wellness check the following year. Budgeting for medical bills can be very complicated and that is why I coach people.
If you are relatively healthy, then make a budget plan that incorporates two sick visits per year based on the costs you research and throw a little into your plan for any related prescriptions. For example, getting a cold that becomes a sinus infection. That's a sick visit and a prescription. If you do see a doctor regularly, you can look back at previous bills or even call the doctor's office to plan ahead for what they may charge you. Seeing a doctor consistently, who has to receive payment prior to your deductible kicking in, can be a tricky number to equate. By knowing their cost and budgeting that cost over the course of a year, you can determine how much you need to be budgeting for those visits. This is commonly experienced with appointments to chiropractors or other specialists (ex. cardiologist) where multiple visits are common practice. If you know you won’t meet the requirement for the deductible than you are still able to figure out your budget for out of pocket costs based on those fees. All you need to know is your cycle of care and then plan for some unexpected low level sickness like mentioned above.
It can get complicated but I would love to help. Don’t be a stranger. Reach out to me so I can help you determine how much you should be saving to cover those medical expenses. Planning ahead can help you save and soften the blow of medical bills, which will help keep your wallet heavy and your heart light.
Question: Do you have a budget in mind to cover medical costs? Do you know your cycle of doctors visits? Let me know in the comments. To be prepared as best as you can contact me today!
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