How Much Should I Be Saving For Healthcare

Updated : Sep 12, 2019 in Articles

How Much Should I Be Saving For Healthcare


Choosing a health insurance plan can be stressful. In addition to navigating all the jargon and
trying to understand the tradeoffs of each plan option – you have to somehow try to
predict what your out-of-pocket costs will be. And, the reality is, no matter which plan
you pick, there will be out-of-pocket costs – in the form of deductibles, copays, coinsurance,
prescriptions, and more. Tax-advantaged benefit accounts, like Flexible
Spending Accounts and Health Savings Accounts, can help you save an average of 30% on out
of pocket healthcare expenses if you are enrolled in a program that allows you to pay with pre-tax
dollars. But even when you know you want to enroll
in an account, you are faced with yet another important question – How much should you actually
be contributing to cover your costs this year? Or into the future? Here are ten tips to help you determine the
right savings strategy. 1. Know your budget and your financial goals. Your healthcare account contributions need
to fit into your overall budget. How much can you afford? If you can only afford to contribute $20 per
month, then contribute $20 per month. You have to start somewhere. 2. Know your health insurance coverage. Make sure you understand the cost levers of
your insurance plan—including deductibles, copays, and coinsurance. How much will you have to pay out-of-pocket
before your coverage kicks in? What are the costs for doctor visits or prescriptions
– or other services your family will need this year? 3. Understand your healthcare account. Each account type has different contribution
limits and different rules. How much are you allowed to contribute? What expenses are eligible? What happens to unused funds at the end of
the plan year? What happens if you leave the company? If you don’t know the answer to these questions,
you may be leaving money on the table. 4. Review last year’s costs. Take a look back at how much you spent on
healthcare last year—it may give you a good idea about how much you will spend this year. How will your family’s consumption change
this year? Consider office visits, prescriptions, specialists,
labs, and other needs. 5. Factor in major purchases. Sometimes we know in advance that bigger expenses
are coming—such as child birth, major surgeries, or elective procedures like laser eye surgery. Factor those costs into your savings plan. 6. Build an emergency buffer. Life happens. We can’t always predict our healthcare spending
down to the dollar, so consider adding a small buffer of added dollars to prepare for when
the unexpected happens. 7. Plan beyond the current year. Healthcare will continue to be a significant
expense, even into retirement. Fidelity Investments estimates that the average
couple will need $260,000 at age 65 to cover healthcare costs in retirement. So it’s never too early to save for the
future. 8. Use pre-tax dollars for everything you can. Don’t leave money on the table because you
didn’t realize certain expenses were eligible. Benefit accounts cover a broad range of expenses
beyond office visits, labs and prescriptions. Vision, dental, mental health, and even some
over-the-counter medicines with a prescription can be covered. 9. Use the tools available to you. Between your employer’s resources and the
information available to you on the web, there’s plenty of information to get you started on
the path to saving. Your employer may even offer calculators or
other tools to help you estimate how much you need to save for healthcare. 10. Be your own advocate. Take the time to answer these questions, and
don’t just do what you did last year. Make an educated, purposeful decision. And don’t be afraid to ask for help if you
need it. Even though out-of-pocket healthcare costs
are unavoidable, there are tools and strategies available to you to help you plan and save
effectively – both for now and for the future.

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