Before launching into the technicalities of health insurance, let me start this article with a short story. I was diagnosed with breast cancer in April 2017. At the time, our family had used our health insurance sparsely – pediatrician well-child appointments, a sinus infection, broken arm. We have health insurance through my husband’s work and I had absolutely no idea the amount of our deductible. The health care copays were low, most of the visits were preventative, and I would pay the random $18.32 or $26.14 bills as they came due. Thankfully, our family was extremely healthy.
Enter breast cancer! I hit the deductible in just the two weeks of testing before any treatment even started – biopsy, PET scans, heart echocardiograms – these tests are NOT cheap. I learned quickly that I had to get a handle on our medical bills and understand our health insurance, but to be honest, this was just not a priority when I was coping with the emotional toll of a cancer diagnosis. The sheer quantity of doctor’s appointments coupled with the uncertainty of my prognosis, not to mention dealing with the upcoming impact of chemotherapy and still being a parent, spouse, sister, friend was very overwhelming. The health insurance situation seemed like something I could “deal with later.”
Here’s what I learned in my insurance crash course. Our deductible was $6,000. Oh, and that’s every year! And guess what? My cancer treatments crossed over two years, so we were financially responsible for this deductible amount TWICE.
The #1 cause of bankruptcy in the United States is due to unexpected medical bills. In 2019, according to the American Journal of Public Health, 66.5% of bankruptcies in the US were due to medical issues, like being unable to pay high medical bills or lost time at work. Medical bills can quickly wipe out savings, retirement accounts, college savings funds, and home equity. Add job loss, or at least a reduction of hours, and the stress of coping with a serious illness, and you have a recipe for a disastrous situation.
I’m sharing this story not to scare you but to encourage proactivity. I am hoping to motivate you to plan for a crisis. You already go to the doctor for annual check-ups, you get your teeth cleaned every six months, you visit the optometrist to check your prescription – now add the final piece of prevention – preparing for a medical crisis through budgeting and an emergency fund.
Learn about your health insurance NOW, while you are healthy and have the mental space to dive into the details. Understand what your financial requirements would be in the case of a major health crisis. And, then save!
Let’s get into your action plan:
1. Take advantage of open enrollment with your employer.
Most employers offer a period of time during which employees can make changes to their health care selections without having to prove a qualifying event. This is called “open enrollment” and, in my experience, it’s often the last month or two of the calendar year.
- Find out when your employer has open enrollment.
- Compare plans – see what else is out there and whether it’s a better fit for your family. You don’t have to accept the “default plan.”
- Weigh whether it’s better for your family to perhaps have a higher monthly premium deducted from your paycheck in exchange for a lower deductible.
- Write down the deductible, co-pays and out-of-pocket maximum.
2. Set a budget.
Now that you know what you would be required to pay if your family has a medical crisis, let’s get organized to make sure that money is in your budget. I would recommend using a Google Sheet or some other spreadsheet so it’s easy to tally the columns and edit the budget.
- Make two columns – income and expenses.
- Input all of your sources of income – primary income, any secondary sources of payroll, disability, child support, alimony, etc.
- List all fixed expenses – house payment or rent, average monthly utilities, child support payments, student loans, car payments, insurance premiums, wage garnishments, credit card payments etc.
- List all variable expenses – food, entertainment, dining out, gifts, etc.
- Run the numbers! Is your budget balanced? What have you typically done with any surplus? What are your plans to either increase income or reduce expenses if you have a budget shortfall?
3. Create an emergency fund.
The emergency fund is like the ambulance, but for your budget. It’s not something you access until a true emergency. These are funds you set aside to help pay for the car accident, health crisis, or other family emergent need. Three out of ten Americans do not have an emergency fund. Be one of the seven out of ten people who does!
- Make a SMART goal. SMART goals are specific, measurable, attainable, relevant and timely. Example: I want to create a $1,200 emergency fund over the next 12 months.
- Open an account separate from your regular checking account. (Make sure your bank isn’t going to charge you any fees. If you are charged a fee, keep shopping.) I would recommend researching a money market savings account so you earn a tiny bit more interest. Bankrate offers an excellent tool to compare savings accounts, if you are unhappy with the terms offered by a local bank.
- Make it difficult to access the money. I received two debit cards for our emergency fund account – I cut up one and I put one in our small fire proof safe. Keeping it out of my wallet helped my self-control and kept me from being tempted to use the funds for an impulse buy.
- Put the money in the budget. Let’s add emergency fund to the list of fixed expenses.
- Pay yourself first! Say you are paid twice a month. Use direct deposit to put $50/pay period into this new emergency fund account. If the money never hits your bank account, you won’t miss it as much and it will be easier to adjust your spending habits to accommodate this $50.
4. Use the funds when crisis hits.
The goal is to be able to pay your medical bills, afford missing work without pay, or a combination of the two hits to your family’s budget. Keep the emergency fund in cash or cash-equivalent, such as a money market fund. When the medical bills start flowing in, they come fast and you want to be able to transfer the money and pay the bills so you don’t rack up late fees or interest.
For Washington State readers, you can find more information about health insurance plans by visiting insurance.wa.gov. Washington HealthPlanFinder is also a great resource for accessing health insurance coverage, if you don’t have access to insurance through an employer.