Personal finance writer and CFP® candidate Kate Dore on what she’s learned about budgeting for health with a high deductible health plan.
High deductible health insurance plans (HDHPs) have a bad reputation for a good reason: it can be difficult to predict how much you’ll spend on medical expenses. Simple as that.
As someone who’s had an HDHP for four years, I’ve had my share of surprise bills. But now, after a couple of years of costly mistakes, I’ve finally crafted a budgeting plan that works.
Saving money the first year
My first year with an HDHP was the most expensive. It felt like I was under attack by surprise medical bills—which were tough to afford—and I’m not even someone managing an expensive, chronic illness.
Luckily, there are a few simple ways to cut back on expenses.
- Start by learning more about your health insurance plan, including what services are included for free. You may be surprised to learn how many preventive services you could receive at zero cost. For example, your annual physical, gynecologist visits once per year, birth control, immunizations, and even some diagnostic tests may all be considered free preventive care.
- You should also spend time learning how to use your health insurance plan’s online tools—including the best phone number to call with pricing questions (throw that thing on speed dial!). Depending on your plan, you may also be eligible for some health discounts, like local gym memberships or fitness gear.
- Get comfortable with comparison shopping. It’s possible to score a deal on prescriptions by comparing local prices through GoodRx—and in some cases, it’s cheaper to pay cash without going through your insurance. I never fill a prescription without checking the costs at each local pharmacy, despite the fact that there’s a little bit of leg work involved.
You can also make cost comparisons for medical procedures through Healthcare Bluebook. If your doctor recommends a procedure, you can see a range of how much you can expect to pay in your area. You may notice a wide range, which could be handy as you make decisions about where to go.
Track every penny of medical expenses
I know, I know, it sounds like a lot. But it’s worth it. Without a basic frame of reference, it’s almost impossible to predict how much you’ll spend on healthcare. Take the time to cost-count during that first year. From doctor’s visits to specialist appointments to monthly prescriptions and dental cleanings—keep track of everything.
At the end of the year, I had a good record of where I made costly mistakes—like accidentally seeing an out-of-network specialist (ouch!) or failing to shop around for one-time prescriptions. I made mental notes about those errors and avoided those expensive mistakes going forward.
Save for annual expenses on a monthly basis
Once I had a detailed record of my first year of high deductible healthcare expenses, I started saving for each of them on a monthly basis. My formula is simple: add up the total healthcare expenses for the previous year and divide that number by 12. Then, I added a new line item to my budget. Et voila: monthly healthcare.
While the numbers weren’t perfect, saving for healthcare every month made those bigger, one-time annual expenses, like annual trips to the eye doctor or dentist visits much easier to pay for. Best of all, after the second year, I had another 12 months of health expense data, which made it easy to make adjustments to my next year’s monthly budget.
Save extra for healthcare expenses in your emergency fund
One of the most important things I’ve learned about HDHPs is to try and prepare for the unexpected. While I’m relatively young and healthy, sometimes I do have to pay for medical expenses for which I didn’t plan.
For example, I went to an urgent care center in February for an illness I caught after several hours of late-night karaoke. Two negative tests (strep throat and flu) and $171.69 of medical expenses later, I received an acute bronchitis diagnosis. I also spent another $141.75 on an unexpected trip to the dermatologist for a mysterious rash, along with another prescription (and some costly drugstore products) to clear it up.
These one-time medical expenses, which often cost between $100 to $300, could easily derail my monthly budget. To pay for these unexpected costs, I have earmarked some extra money in my emergency fund. While I could easily spend my health savings account (HSA) money, I have decided to leave it untouched. I continue to invest the money in my HSA for healthcare expenses in retirement. But to each their own in that department. As long as you’ve done the due diligence and have the savings, you’ll be golden.
Prepare for open enrollment
Whether you have a full-time job or are self-employed, you may have the opportunity to change your health insurance plan during the open enrollment period, which is coming.
For self-employed or contract folks, the Marketplace Open Enrollment begins November 1, so now is crunch time. If you haven’t already, be sure to review your current health insurance plan and decide whether you want (or need) to make a move or just renew. By knowing exactly what works, and making note of what needs improvement, it may be easier to secure a better health plan for next year.
If you spent a lot less money on healthcare because of the pandemic, it may be worthwhile to review your out-of-pocket expenses from 2019, too. You can make an out-of-pocket expense estimate for 2021 by taking an average of your medical expenses from 2019 and 2020.
After reviewing four years of medical expenses, I will probably stick with my current health insurance. But not before taking a look at the new monthly premiums! Overall, though, I’m happy with my coverage and budgeting strategy and hope you will be, too.