Nickels and Dimes: Budgeting for Healthcare

February 12, 2014

Creating room in a budget for health care costs is something we all now have to incorporate into our household expenses. Finding the right balance can be difficult, but there are strategies we can all use to make our nickels and dimes stretch further. By following these simple tips your family’s health care needs can become an integral part of your budget before health care help is needed rather than after.

Take Charge

Educating yourself to all the options available is critical and must be done in conjunction with making financial considerations. Michael Kitces, a partner and the Director of Research for Pinnacle Advisory Group and publisher of the financial planning blog, Nerd’s Eye View, offers this financial advice:

“My primary tip for people looking to budget around health care expenses right now is to make sure you understand how the premium assistance tax credit works, and to take advantage of it. We see a lot of people with sticker shock at the headline cost of health insurance, only to realize it’s actually far more affordable for them after including tax credits.” Compare and contrast options and find what works best for your situation. Understand how to best use the tax credits available for your situation.

Future Planning

Once you have an understanding of how tax credits work you need to look at your individual financial situation. One option to consider would be using the services of a Certified Personal and Family Educator such as Todd Christensen in making these choices. Todd serves as director of the National Financial Education Center of Debt Reduction Services, contributes to DebtReductionServices.org, writes at Everyday Money for Everyday People!, and offers this insight: “The only industries we should all be paying – but none of us ever want to cash in on – include health insurers and funeral homes. Our success at avoiding the first, though, may likely expedite our need for the last.”

Using this philosophy to develop better money management skills now can help in your budgeting for health care costs in your future. This can be started as early as high school age where Christensen has taught students to begin using his strategies in planning for their futures today.

Make Your Budget

This basic yet necessary step is offered by the blogger of Early Bird Mom, Sarah Mueller, offers practical advice for busy families on how to save money while maintaining a healthy lifestyle. She suggests incorporating changes into your household budget to make room for health care costs: “If you don’t already have a budget, get one! Start tracking your purchases for a month or two, and you may find some areas where you can save without making too many changes. Look for easy things to cut back on, like high cell phone bills, dining out, cable or satellite TV packages and lottery tickets.”  This is a first step for families as they prepare to incorporate these costs into creating a healthy lifestyle as healthcare consumers.

Think Outside the Box

Besides the costs of health care premiums, there are many hidden costs to consider. Finding a way to plan for these costs when creating your budget should be a consideration. Planning for variable medical costs, such as co-pays and prescriptions, is vital. “None of us know exactly when or how much our incidental medical expenses will be,” according to You Need A Budget blogger Mark Butler. “The best we can do is set aside a certain amount of money every month in a ‘Medical’ category in our budgets that will absorb those unexpected expenses when they do come. By ‘pretending’ to have the monthly expenses even when the transactions only happen occasionally, we protect ourselves against having to create new credit card balances in the event of an expected but unpredictable expense.”

Having this contingency plan in motion, Mark contends will make your budget work better and smarter for you over the long haul and avoid having to deal with emergency expenses. As a former educational website owner, Butler stresses that you need to know and understand many aspects other than just how to save money on premiums, and that the more information you have at your disposal will help you think outside ‘your’ box.

Affordability Versus Risk

Every individual has different needs, so figuring out what works best for you, comes down to assessing your level of risk. Todd Tresidder, founder and Money Coach at FinancialMentor, which offers discussion and advice on affording health care premiums and using government subsidies, purports that affordability should not be your determining factor. Your personal risk level is of greater importance.  Knowing how much health insurance one can afford should be less important as to the “question of what risk you can’t afford to accept that must be insured away.”

As an example, he says: “I carry high deductible health insurance because I can’t afford the risk of cancer or a serious accident destroying our savings. I choose to accept the risk of the high deductible because my family is generally healthy, so it is uneconomic to insure that controlled risk even though we could afford to. Instead, I choose to insure away the uncontrolled risk.”

When higher out of pocket expenses are an issue, Todd applies the same principle stressing that “you must be able to pay the out of pocket expenses without going into debt.” He acknowledges this may cause difficulty “but if bad luck strikes you can still figure out how to get by, however if out of pocket expenses would cause you to go into debt then it is too large a risk and must be insured away.”

Ready? Set! Go!

Although the initial reaction to adding healthcare to your budget might seem daunting, we know it’s a lot worse to face those unexpected expenses of medical emergencies unprepared. Spending time working out the nickel and dimes of a budget now can save you countless sleepless nights filled with worry later.

Post author Loren Pleet