Can I admit something that reveals my ignorance and relative lucky breaks?

It’s always been pretty easy for me to avoid talking about health insurance and healthcare costs because—as an adult—I’ve always been employed and healthy. 

It wasn’t until recently (like, embarrassingly recently) that I was hit with a medical bill that I wasn’t expecting:

A bill from a dermatologist for a skin check.

The bill wasn’t even high (around $200), but I figured my skin check fell into that beautiful, free category of American healthcare: Preventive. The frustration of trying to get straight answers and push back on the charge sent me down a rabbit hole that’s been even more frustrating and eye-opening, to say the absolute least.

I didn’t know much about healthcare until recently, either. It made me feel stupid, so I just ignored it (again, the privilege of being young, employed, and healthy made that possible). 

This topic is difficult for another reason: It feels a little bit like advising someone on how to successfully drive a broken down car at varying risk levels of catching on fire. “Just try your best not to press this button for too long or  steer too far this way and you should be able to avoid completely blowing up!” 

It’s hard to talk about it without acknowledging how broken the system is, and that can often be sticky, political, and challenging in its own way.

And while my true deep dive will be on the podcast this week, I felt like it was worth diving into this topic on a strategic, planning level, too: How do we budget for our cost of healthcare in the U.S.?

(I say “in the U.S.” because my readers in other rich, developed countries don’t have to – something we’ll explore at length in Wednesday’s episode.)

While the amounts necessary will vary widely based on the type of insurance you have, the method for determining what’s wise to set aside on the individual level should be fairly replicable. This assumes, of course, that you have health insurance, and that you’re not one of the roughly 20 million Americans who live every day without it, one medical emergency away from likely bankruptcy (see? It’s political).

Some basic (snarky) definitions worth knowing

Before we can talk about how to calculate what’s wise to budget for this stuff, it makes sense to define a few key terms in layman’s verbiage first. This is “health insurance in America” as defined by Money with Katie, Snark Level 11.

Premium: This is what your health insurance charges you monthly to have insurance. It’s fitting that the word “premium” is the name, as it can be expensive as fuck to just have insurance. 

Used in a sentence: “Man, I’d love to go to Nobu on Sunday, but my monthly insurance premium is $200 and it’s eating into my brunch budget.”

Deductible: Oh, sorry–did you think paying those premiums meant your health insurance company was actually going to pay for something? LOL, silly #RichGirl–not until you’ve hit your deductible, which is the amount you have to pay out of pocket before they’ll start paying for shit (unless it’s truly preventive in nature, in which case, the deductible will be waived; this applies to things like a check-up where you don’t talk about anything specific, because yes, asking specific questions about specific ailments can make the whole visit get coded differently and cost more! It’s not infuriating at all).

Used in a sentence: “I need to have this mole on my back shaped like the Statue of Liberty removed but it’s not covered, so I have to pay $500 out of pocket. At least it counts toward my deductible of $3,500.”

Copay: These might not be that aggravating, depending on how expensive they are – you may $20/pop at a doctor or $10/medication at the pharmacy, and that probably won’t send you spiraling. The frustrating thing about copays, though, is that they typically don’t count toward hitting your deductible. You typically have to pay these upfront at the time of service.

Used in a sentence: “Every time I get my patriotic moles removed I have to pay a copay of $50.”

Coinsurance: You’ve paid your premiums and hit your deductible? And now you’re expecting insurance to cover the rest? Good try, but no! Your coinsurance represents what portion of treatments you’re responsible for moving forward now that you’ve given your insurance company $10,000 and your firstborn son. 

Used in a sentence: “Well, I’ve gotten every mole from my body scraped off and successfully hit my $3,500 deductible! Hell yeah! Now my coinsurance on future medical costs is 20% until I hit my out-of-pocket maximum.”

Out-of-pocket maximum: Another confusing term in this medical-grade confusion soup that’s different from your deductible in the sense that once you hit your deductible, you’re on the hook for coinsurance until you hit this other limit, after which point your insurance should kick in all the way. There are different maximums depending on whether or not you’re using in-network or out-of-network doctors.

Used in a sentence: “Shit, thank God for all these patriotic moles! I’m encroaching on my out-of-pocket maximum. Good thing my dermatologist is in-network.”

In-network: Americans have so much choice in their health, right? They can choose any doctor they want, right?! Well, sure–if that doctor is in-network. In-network doctors (as opposed to out-of-network doctors) are covered by insurance, which means the costs you spend on them will count toward things like your deductible. Want to see a doctor that’s not covered by your insurance? Not only will you probably pay out of pocket, but it counts toward a different, out-of-network maximum. 

Used in a depressing-as-fuck sentence that’s from a true story I came across in my depressing-as-fuck research: “My child needs open-heart surgery but there aren’t any pediatric cardiologists covered by our insurance, so I guess I’ll have to use an out-of-network surgeon if I want my child to survive. Should only set me back a few hundred thousand dollars to save my kid’s life.”

…Yeah. 

HSA: Your HSA (Health Savings Account) is the cute ’n fun little treat the IRS gives you for being utterly screwed by our healthcare system if you choose to have what’s called a high-deductible health plan. High-deductible health plans are health insurance plans with deductibles higher than $1,400 for singles and $2,800 for plans that cover the whole family. The HSA is a triple tax threat: The money you put into it is tax-deferred, it grows tax-free, and if you end up taking the money out later for medical expenses, it comes out tax-free, too. This can lead to a savings of between 10% and 37% on medical expenses, depending on your marginal tax rate.

If you don’t have a high-deductible health plan, you don’t get an HSA. Womp-womp. Not to be confused with an FSA, a Flexible Savings Account, which is use-it-or-lose-it and “expires” each year.

Used in a sentence: “Damn, I’m getting utterly boned by my insurance premiums, but at least I have my fun little tax-efficient investment vehicle as a result!” 

How I’m structuring my budget for health expenses

So let’s say you’ve sold your soul to Corporate Daddy and scored a kick-ass health insurance plan. You’ve got your plan documents in front of you, and you can see your premium, deductible, out of pocket maximum, copays, and hopefully, you’ve got access to a portal of some kind that tells you which doctors (and services) are in-network. 

Now what? 

How do you budget? 

For starters, your premiums are likely deducted from your paycheck, so there’s no real budgeting you need to do for those in the sense that you’ll never see that money anyway.

But what about everything else? 

While none of this is fool-proof (broken system, remember?), I’ve found it gives me a sense of control–false or not–to take my out-of-pocket maximum into consideration when budgeting further for healthcare. 

The deductible is a good place to start, but the reality is, it’s not impossible that your total healthcare costs in a year could end up exceeding your out-of-pocket maximum in worst case scenarios. 

This part is relatively simple: 

Take your annual out-of-pocket maximum for in-network doctors.

Divide by 12. 

Boom: That’s the monthly savings you should “budget” for healthcare. 

If you have an HSA, investing those savings inside your HSA (up to $3,600 per year for individuals and $7,200 per year for family plans) is the most efficient way to do this. If you don’t, simply setting the money aside in savings or investing it somewhere flexible (like a brokerage account) is a good option, too. 

I have an HSA, so I contribute the maximum. This ensures you have the money you need when you inevitably have to pay for something health-related. 

Let’s do an example, because examples are fun

When I worked for Facebook, ZuckDaddy provided fantastic health insurance (most tech companies do). I paid $0 per month. I had a $0 deductible. In fact, one could say Zuck provided universal healthcare for his employees. 

Too bad I don’t work for Facebook anymore.

My new insurance is still great, as far as insurance plans go, but I’m sure our #RichGirl readers in Germany, France, Sweden, the Netherlands, etc. are utterly horrified (if they’ve even made it this far in this blog post without passing out and needing to take a free ambulance to their free hospitals for free medical attention).

• My premiums are $70/mo. 

• My deductible is $2,500

• Copay/coinsurance: $0/0%

• My in-network out-of-pocket maximum is $3,500

• My out-of-network out-of-pocket maximum is $7,000

This means the most I’ll spend on healthcare this year should be $3,500, assuming I can limit all my care to in-network providers. This doesn’t include the $70/mo. that’s taken from my paycheck, which I don’t expressly budget for since I never see the money anyway. If I have to use out-of-network doctors for some reason, I could spend up to $7,000 (not including premiums, and I don’t have copays or coinsurance). 

This means I need to set aside approximately $292 per month to safely account for a full year of health expenses ($3,500). Fortunately, the HSA maximum contribution is $3,600 per year, and since I love saving money on my taxes (please resist the urge to message me pointing out the irony of my hatred for taxes and love for universal healthcare systems; I know I’m a walking contradiction), I contribute the maximum anyway. 

This means–at the end of a year–I’ll have $3,600 fresh dollars inside my HSA, enough to cover a full year of medical expenses. 

This is where the story has a silver lining: If you assume that all goes well for a few years, I could amass a decent amount of money in that HSA and (theoretically) stop saving additional funds. For example, if I had no real medical issues in 5 years and contributed the maximum to my HSA, I could save $18,000 over 5 years that would be there for me if shit hit the fan later. Since you can invest this money, it’s a double whammy, as that money will grow. We love a two-fer.

(Note that you don’t need an HSA to save for medical expenses, it just makes sense to use it if you have a high-deductible health plan. If you’re not HSA-eligible but still using this approach, you have a different type of benefit: You can save this money somewhere with more flexibility and use it for something else if you need to.) 

For every year that I contributed the out-of-pocket maximum without using it, I’d give myself a year of hypothetical medical expenses. 

The tricky thing (and the reason why U.S. health insurers aren’t incentivized to focus on preventive health measures) is that most people stay on their health insurance plan for an average of 6 years before changing employers (and plans), so these numbers can and do change.

You may go to work for a tech company with killer healthcare and end up with very few (or no) costs, or you could go work for a startup that doesn’t supply it at all. 

Again, this is why this post is riddled with disclaimers that none of this is fool-proof–it’s just the best way I know how to begin attempting to be responsible within a system that’s low-key barbaric. *smiles as single tear falls from eye*

A caveat that’s worth noting

My close friend Leandra is a personal finance blogger as well; you may know her lovingly as “Female in Finance.” 

She had a medical issue a few years ago wherein she got mold poisoning from an apartment building she lived in. It took the doctors a really long time to figure out what was wrong with her (and actually, she eventually had to fly overseas to receive care in Germany because the U.S. healthcare system basically failed her). She was close to death, by this point, which is why I say these issues are not just frustrating, but depressing as fuck. 

Despite the fact she had Platinum PPO health insurance that cost over $700 per month, they wouldn’t cover her condition. Why? It was a condition not covered by insurance. So… Yeah. You can pay for the best coverage and still be left high-and-dry if you have a health issue that your insurance isn’t interested in covering. (This induced a slight state of panic in me: Her malady was called “neurotoxicity,” if you want to look it up.)

In the end, Leandra paid over $100,000 out of pocket for all the medical attention she received. 

And while that’s stunning, it wasn’t even the worst case scenario (i.e., it could’ve been worse). Think about Leandra’s situation for a moment: 

• She was a high earner. She made more than $100,000 per year, which meant her costs were pretty horrific, but not a financial death sentence. 

• Her condition was someone else’s fault, which means the U.S.’s litigious problem-solving ended up working somewhat in her favor, since she was able to sue the apartment owner for negligence and use her winnings to cover (some, but not all of) her costs. Make no mistake: It still ended up costing her a lot of money, but the fact that someone else’s negligence was to blame helped offset things a little. 

But what if you’re an average earner and your not-covered-by-insurance disease can’t be traced back to someone else? Then what? 

Unfortunately, I don’t have an answer. All I can say is: The best we can do is plan for the variables we know about, those provided in our insurance plans. Everything beyond that is seemingly out of our control.