How to Budget for Healthcare

Managing your healthcare budget is as important, if not more, than managing your household budget or any other kind of plan. To budget for healthcare, what you need to do first is take a realistic look at your health and how much it would cost to stay fit. Maintaining and protecting your health is easy if you set aside money to invest in the right health insurance plan.

Planning your Healthcare Budget

Planning your healthcare budget ensures that you set aside money for a healthcare rainy day. This can be done by putting money into a healthcare savings account in your workplace or through a health insurance company. Why is this so important? Well, healthcare costs are rising every year and take more out of your budget that has to also set aside funds for other important things like groceries, housing, transport, and so on. Moreover, you could face a catastrophe like an accident or sudden illness. So it’s important to be prepared for the unexpected when it comes to healthcare.

The first thing you need to do when you plan your healthcare budget is look at and understand your costs. They can be grouped as follows:

• Fixed costs: This is the money that goes into paying the monthly premium for your health plan and if you are working, the amount is taken out of your paycheck. These fixed costs remain the same throughout the year.

• Variable costs: Variable costs are the dental and vision care costs and money spent on regular medication. Though these costs usually vary from year to year, they are fairly constant

• Other costs: This is the money you have to put aside for preventive care and includes what you pay to enroll in fitness programs, and expenses on vitamins, special therapy, and so on. These costs are more or less constant.

Consumer Driven Health Plans to Prepare for the Unexpected

What’s important is that your budget for healthcare must cover out-of-pocket costs which are unexpected and cannot be predicted. These include costs of doctor visits and prescriptions and emergency healthcare. The best way to be prepared for these unexpected events is with a Consumer Driven Health Plan (CDHP). CDHPs make individuals responsible to pay for their healthcare. Health Savings Accounts (HSAs), Flexible Spending Accounts, High Deductible Health Plans (HDHPs) (FSAs) and Health Reimbursement Accounts (HRAs) are all elements of a CDHP.

Health Savings Accounts: A HSA is a tax-free account that helps you save money for your healthcare. The amount that you put into a HSA is carried over from year to year.

High Deductible Health Plans: Enrolling in a HSA plan will qualify you for a HDHP. With an HDHP, you pay less for healthcare and at the same time, are assured of comprehensive coverage. These plans come with a low premium, high deductible, no copays and most often, full coverage for preventive care. There is also a yearly cap on the amount you will pay for your healthcare. Teamed with an HSA, an HDHP can maximize the benefits of the money you spend on healthcare.

Flexible Spending Accounts: Both you and your employer can put money into your FSA. These pre-tax dollars are deducted from your pay check. Unlike a HSA, unused funds are not carried not carried over and expire at the end of a year. The advantage of FSAs is that you can use them with any health plan, unlike HSAs which can be clubbed only with a HDHP.

Health Reimbursement Accounts: With a tax-advantaged HRA, your employer would reimburse your out-of-pocket medical expenses.

So, with all these options, budgeting for your healthcare is not as difficult as you think. First, sum up all your expenses (fixed, variable and other). Then enroll in a suitable healthcare plan with your employer. You can also enroll directly through an insurance company. The best way to understand the various plans that health insurance companies offer and decide which one is right for you, is to request professional advice from a licensed insurance agent.