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May 19, 2020

How to Plan for Healthcare Costs Like an Expert

Guest Author: Ali Rennoll

When it comes to financial planning, only one in four Americans have an actual plan, according to Charles Schwab’s Modern Wealth Index. Yet, financial planning is a crucial part of better money management for everyone. With three in four consumers living paycheck to paycheck, it has never been more important to plan for the costs ahead, including your healthcare needs. Recent research has shown that as much as 25 percent of Americans are missing out on medical help because of affordability. From starting a sinking fund for healthcare premiums to saving for off the books emergency health procedures, including healthcare in your financial plan can not only save your life but save you thousands of dollars down the road.

Build An Emergency Or Sinking Fund

Financial emergencies are inevitable. In the last year, 28 percent of people said they experienced a financial emergency and  37 percent of them said they would have to turn to credit cards or loans to cover one. Unfortunately, 26 percent of them have no emergency savings, according to Bankrate’s Financial Security Index. While most people think an emergency fund is just used in unexpected situations like the loss of income or unexpected car repairs, it can also be used to fund out of pocket medical expenses (or at least you are reimbursed by your insurer).

You can also choose to set up a sinking fund for your annual healthcare expenses in advance. The Kaiser Family Foundation annual healthcare survey estimates that family healthcare cover can cost as much as $20,000. Once you get an idea of your annual healthcare costs such as your annual health insurance premium, use budgeting and cost reduction techniques to set aside money each month into your dedicated sinking or emergency fund.

A great tip to stay on track is to create a built-in, automated transfer to a dedicated savings account each month. This way, when it is time to renew your insurance or you or are faced with one-off healthcare costs like dental work to repair broken support hardware, you can get it fixed immediately instead of waiting for the insurance claim process to be completed. Delaying dental work or other non-emergency medical procedures can risk further consequences, such as extending your dental treatment time or risking an infection.

Create Your Optimal Insurance Policy

Securing the right cover of healthcare insurance is crucial in alleviating your future healthcare costs – and the impact on your financial plan. Almost 50 percent of Americans are uninsured or uninsured. In addition to the rising premium costs, 41 percent of consumers attributed their lack of insurance to currently paying off medical debt. This, however, further highlights the need to secure the right healthcare coverage for yourself and any medical needs you may encounter.

While the state provides Medicare for over 60 million Americans each year worth $11,800 per recipient, the cover only extends to certain conditions and prequalified individuals. Because of this, it makes sense to secure supplementary private insurance including long term care and life insurance when planning for your retirement. Estimates from LifePlans put the annual premium cost of a long term life insurance policy at $2,700 per year.

Start Factoring In Healthcare Costs Into Your Cash Flow

If you choose to draft your own financial plan, be sure to account for ongoing healthcare costs as if it were an overhead costs in your own business. The average American household spends almost $5,000 on healthcare costs and with rising premiums, this expenditure is set to increase. A newly retired American would require an average of $285,000 for healthcare costs.

Since Social Security only accounts for 40 percent of your income post retiring, you should include healthcare costs when calculating your needed income and expenses. This means including it in any cashflow forecasts, determining future lifetime costs, and accounting for it when establishing income streams.

Regardless of your age or position in life, financial planning is a must for everyone. It helps you anticipate and achieve your financial goals throughout life, from funding your life post-retirement to buying your first home or starting your own business. Similarly, planning for your healthcare costs throughout life should be on that list. Neglecting to plan for the cost of staying healthy means you risk your health, your income, and your future life.