When you received your first-ever health insurance identification card, you probably had a feeling of exuberance. You may have felt that handing your card over at the doctor’s office would pay the entire bill. Then you found out differently, and you begrudgingly got out your checkbook and paid for the portion insurance wouldn’t cover.
What you found was that there is a whole host of other expenses you have to pay when you receive medical care, even if you have health insurance. These are called “out-of-pocket expenses.” Let’s look at what they are and how you can pay for them.
Consider any payment that you have to make to a medical care provider because your health insurer didn’t pay it to be an out-of-pocket expense. Here's what this typically includes.
A deductible is the amount of money you need to spend before your insurer begins to pay your providers. Deductibles can range from $500 to $5,000 or more (the higher the deductible, the lower the monthly premium).
A good example of a deductible in action is an emergency room visit for a broken arm. If the total cost of the visit is $2,000 and your annual deductible is $500, then you’ll pay $500 out-of-pocket and the insurance company will pay $ 1,500. The next time you use your insurance that same calendar year, you won’t have to pay your deductible because you already paid it for the year.
[ Related: The pros and cons of high deductible health plans ]
The most typical co-insurance arrangement is 80/20. This means that after you’ve met your deductible for the year, the insurer will pay 80% of covered medical expenses and you’ll pay 20%. The keyword here is “covered.” Anything not covered would be another out-of-pocket expense for you. Fortunately, there is a maximum out-of-pocket amount or limit for health insurance policies.
It works like this: Your remaining hospital bill is $10,000 after you’ve paid your $500 deductible. With an insurance policy having an 80/20 co-insurance clause, you would have to pay $2,000 of the charge and the insurer would pay $8,000.
With a $2,500 out-of-pocket maximum, which includes your $500 deductible and 20% coinsurance, you would have met the out-of-pocket maximum for the year, and any eligible medical expenses for the rest of that calendar year would be covered 100% by the insurance company.
A co-pay is the money you pay to visit a provider of medical services and is usually a feature of HMO and PPO health plans. A typical co-pay would be $5-$20 to see your primary care doctor or $25-$50 to see a specialist. After you’ve paid your co-pay, the balance of the charges for the visit is paid by the insurance company.
Prescription drugs normally have a co-pay associated with them until you meet your out-of-pocket maximum for the year.
This is sometimes considered an out-of-pocket expense because it covers something you pay for because it’s not covered by your health insurance policy. Supplemental policies can cover:
These policies are often needed because an employer doesn’t offer them as an employee benefit, resulting in an employee needing to purchase these policies individually.
[ Related: Who should buy supplemental health insurance? ]
Premiums are what you pay each month for your insurance coverage and can also be considered an out-of-pocket expense for health care because you personally pay each month to have insurance coverage.
As much as we don’t like paying them, out-of-pocket expenses are unavoidable. During the course of a year, you or your family members are quite likely going to require some type of medical care, whether it be a doctor’s office visit or a trip to the emergency room.
How can you prepare for this expense? Here are several suggestions to help you:
Many companies offer the option of contributing to an FSA when you enroll in the company’s health insurance plan. These contributions are made with “pre-tax dollars,” meaning they will help reduce your taxes, as well as be used to pay for out-of-pocket expenses.
FSA funds are often used for out-of-pocket expenses like co-pays, deductibles, and prescription costs. But you can also use FSA money for routine items you can purchase at just about any drug store, such as band-aids, blood pressure monitors, diabetes blood-testing devices, and many more healthcare items.
Near the end of the year, many people use FSA funds to buy new eyeglasses or visit the dentist because they don’t want to miss using their FSA money by the end of the year. If there is money left in the FSA at the stroke of midnight on December 31st, the unused money is forfeited. It’s often referred to as “Use it or lose it.”
Contribute to your Health Savings Account (HSA)
This account is very similar to an FSA with one significant difference: unspent money in your account at the end of the year is not forfeited. Your HSA funds carry forward indefinitely. It’s a true savings account for which you can contribute “pre-tax dollars” and receive a tax break.
Some employers offer both an HSA and FSA. There are limits as to how much you can contribute, which your plan administrator can give you details about.
Shop for doctors, urgent care, and hospitals
If you call different healthcare providers, you’ll find that their prices vary. If you contact one hospital to inquire what the average cost of a three-day hospital stay is, you may be quoted, for example, $5,000, whereas another hospital may quote you $4,200. Shopping for healthcare services and providers can add up to big savings over the course of a year.
Ask for a cash discount
Many providers will accommodate you with a lower price if you don’t have insurance, or have insurance but it doesn’t cover all, or a portion of, a medical expense or procedure, such as elective surgery. You might be surprised at how much you save by telling the provider that you’ll pay in full if they will give you a discount on their standard fee.
Establish your own savings account
You probably already have a checking and savings account. Why not fund your out-of-pocket expenses with a separate savings account that you systematically make deposits into each month? By doing this, you’ll have money accumulating for the sole purpose of paying for healthcare expenses, and you’ll know it’s there when you need it.
With the cost of health insurance continuing to rise each year, more and more employers are offering plans that require you to pay more out-of-pocket to keep the prices affordable. By knowing what your portion will be, you can be prepared to pay what’s necessary when you need to use your coverage.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.