Welcome back to Melisa Making Cents!
As a Certified Financial Planner™ and Financial Advisor Representative, I know the importance of considering lots of "real life" scenarios when creating a comprehensive financial plan for my clients. Some of the topics, like health issues, are not fun to talk about. Nevertheless, they are important to consider, because as we all know... Life can throw us curveballs!
This morning I was woken up from a deep peaceful sleep by an absolutely terrifying sound.
Aaaaachoooo! Aaachoo, aachoo, aaaaaaaaachooooooooooo!
It’s funny how one specific sound can start your mind a worrying. Fall here in Texas means a couple of things to my family. 1) Halloween is almost here! 2) Thanksgiving and Christmas are not far off. And 3) The rise of both allergy and cold/flu season.
Like most of the people I know, we are just way too busy to get sick. As Kimberly "Sweet Brown" Wilkins, said.. “Ain’t Nobody Got Time for That!” If you are anything like me you don't like to use your sick days, because let’s just face it, getting sick is expensive!
Getting sick as you get older is not much fun.
As a kid, I didn’t get sick often. But, I fondly remember getting the chickenpox in preschool. Man was that awesome! (Well, despite the need to scratch all day long.) I got to lie on the couch all day, and watch my favorite lineup of TV shows. Morning cartoons, followed by Let’s Make a Deal, then The Price is Right. (Yes, I know this sounds odd for a pre-schooler to watch, but I was fascinated by the prizes and the games.) Next up would be General Hospital, and I would strategically have lunch and take a nap, because I didn’t understand what all the drama was about. (For the record, I still don’t.) Sprite, chicken soup, grilled cheese sandwiches, someone checking on you and attending to all your needs. It really was heaven!
The next memory I have of being sick wasn’t as awesome. I stayed home because of the flu. Things seemed to start off my way… You know.. TV, Sprite, soup…. Then I remember what I thought was M&Ms my mom had given me to make me feel better. I popped them in my mouth and BLECH!!!! The red M&Ms mom had given me had obviously gone bad. At that point in my young life I decided to never take an Advil again. Getting sick was no longer fun when you had to swallow awful “candy“ and take nausea suppositories. The glamour of sick days had officially gone out the window.
Budget for Healthcare because even the healthiest people get sick.
I didn’t truly get the importance of not getting sick until I landed my first job out of high school. Day eight into being an assistant clerk, and I had to call in sick with a severe cold. Definitely not so much fun now. Lying in bed, and thinking about all the files that needed labeling, I couldn't rest a bit. Knowing that my checking account looked as bad as I felt, I felt sick in more ways than one. I had gotten paid the week before, but like most young adult I had spent most of that first check on “wants”, and taxes seemed to take the other half. It was many years and many days of being out, before I learned to budget for healthcare. Until then, I would just let credit cards handle it… because that’s what "anyone" else would do. As a 19 year old I couldn't understand saving for healthcare, let alone retirement.
Your healthcare budget should be 5-10% of your discretionary income
Healthcare costs can vary from person to person. This number is not set in stone, but I recommend budgeting a minimum of 5% of your discretionary income. This amount doesn’t include healthcare premiums, because the insurance premiums that come out of your paycheck are needs, and not wants. (Like it or Not!) If you have higher monthly costs, your budget could very well be over the 10% range! You can do things to keep costs down, like by using generic medication instead of name brand medications, but even then, things like generic medications can still be expensive and unavoidable, and you will only be able to keep costs down so much.
If you are lucky enough to have minimal monthly health costs, you should still aim to set aside the 5%. No doubt, at some point in your life you have heard the phrase “Accidents happen”. A few weeks ago in my blog post, Taking responsibility of your personal finances and changing your money mindset, I referenced some of the crazy curve-balls that life can throw at you.
My personal curve ball was two years ago when I got an awesome new bike for Christmas. The very first ride outside was going fantastic! I felt amazing zooming around White Rock Lake, when suddenly I had to brake to avoid an unusual situation. The next thing I remember was flying face first towards the concrete. It was a dismount that Simone Biles would only dream about accomplishing. After an ER exam, they concluded I had a black eye, tons of bumps and bruises, and my wrist was broken. Despite all of this, my spirit (and my new bike) was still intact! I was also happy I had set aside money in my healthcare fund. It, combined with my supplemental accident indemnity policy, helped me walk away without damage to my bank account. Stashing the extra 5% paid off…literally.
Health Insurance is expensive, but not as costly as an uninsured medical visit.
Paying your part of your healthcare benefits from your paycheck certainly looks and feels expensive. Especially when there are mouths to feed and bills to pay. The average monthly premium for a family of four is $1,200, and $450 for an individual. So you can see why people really feel the sting when paying healthcare costs.
According to Debt.org, total healthcare spending in America was approximately $3.5 trillion in 2017 and about 32% of that, or $1.1 trillion, was spent on hospital services. If you have ever examined an insurance Explanation of Benefits (EOB), you can get a good idea of exactly how the costs add up. A typical office visit will run approximately $100-350 to see the doctor for 10-15 minutes. This doesn’t include any blood work or medical tests that might be needed, nor does it include medication.
According to the Healthcare Bluebook, non-surgical treatment for a broken arm in an emergency room will average approximately $7,500 without insurance. Surgical treatments can add another $5,000-$10,000. In contrast, non-surgical treatment of a broken arm with insurance averages approximately $2,500. As an FYI: Healthcare Bluebook has a pretty great tool for estimating costs!
Providers may give you a “Cash” discount upon request
Some medical providers will offer a cash price discount, if you let them know you are uninsured and request the cash price. This often saves them the hassle of dealing with the insurance companies. Because, let’s face it… it seems like the only people that actually enjoy talking to the insurance companies, are the insurance companies. Be prepared to pay though in full, or setup a payment plan. Just make sure you pay the medical bills, or they can adversely affect your credit.
Catastrophic Health Insurance could help you save on monthly premiums
For individuals 30 and under or anyone with a hardship or affordability exemption, a catastrophic policy may be for you. If you are eligible, the options will be shown on the Healthcare Marketplace. Catastrophic health insurance plans have low monthly premiums and very high deductibles. They may be an affordable way to protect yourself from worst-case scenarios, like getting seriously sick or injured. Do your research before you purchase a plan, as some also cover various preventive care services! The Healthcare Marketplace is a great place to compare available policies.
Supplemental policies can reduce your out of pocket medical costs
Planning ahead with supplemental insurance plans can help you feel more prepared to handle the medical costs and out-of-pocket expenses that often accompany these unexpected events. For me this accident indemnity policy came in handy when I went head first over my brand new bicycle handlebars, and face first into the concrete street. The inexpensive supplemental policy I have through work, covered nearly all of my medical bill. It was nice not having to dip into my emergency fund to cover huge out of pocket expenses. I was thankful that I had signed up for the policy “Just in Case” two months before.
A year later I was examining my insurance policies, when I made the important decision to keep my supplemental short-term disability policy. I knew it would help cover maternity expenses, and I had recently found out that I was expecting. Recouping some of the costs through the short-term disability policy for my unpaid maternity leave was a godsend.
Supplemental policies are not for everyone. They do however come in handy if you or your youngsters live an active lifestyle. (Or someone in your household is accident prone.) In the end, it may be cheaper than a lifetime supply of bubble wrap for your family. An accident indemnity policy is handy in this case. As an example, it might cover an accident in which treatment does not last over 24 hours, such as a broken leg or wrist. You get treated by a medical provider, get a copy of the bill and submit it to the insurance company. Just like magic, they turn around and pay you directly, unless you direct the money elsewhere. Rates are based on your age and the size of your household, but can run from $8 a month to $16. Best of all, the benefits are tax-free, so Uncle Sam doesn’t share in your misfortune.
How a supplemental short-term disability policy works
Generally with a supplemental short-term disability policy you have a waiting period of 14 days before the benefits kick in. After the 14 days it will replace a portion of the income you would lose by not being at work due to an injury. I hear this type of insurance lovingly referred to as “paycheck insurance” because it insures a person’s most valuable asset, their ability to earn a paycheck. It’s important to understand that it doesn’t replace your whole paycheck! You are only reimbursed up to a percentage based on the level you choose when selecting the plan. Rates are generally as low as accident indemnity policies, and the benefits are again tax free.
If you are planning to start a family, it’s important to know that a lot of companies have a 10 month exclusion period for maternity leave. By doing this, they are trying to prevent people from getting pregnant and then signing up for the policy. While this could have an impact on someone who got a job not knowing they were pregnant, the idea is that it keeps down costs that might arise from someone who was pregnant getting a job simply for the benefit.
Avoid running the risk of “Supplementing” your budget to death
Ever walk into a GNC and get lost in the millions of brightly colored bottles promising all sorts of benefits? Welcome to the world of insurance! There seems to be a policy for anything and everything. Before purchasing any extra policies, examine each of the policies and determine if they fit in your plan. If you are active or have an active family, that supplemental accident indemnity policy might be for you. A supplemental hospital indemnity policy may come in handy to cover the out of pocket costs of hospitalization after surgery. Supplemental cancer policies will kick in to pay for a portion of your treatment. Accident Death and Dismemberment (AD&D) generally pays benefits for the loss of limbs, fingers, toes, sight and permanent paralysis, or if you accidentally die.
Is your head spinning with options? The good news is that you are not obligated to buy everything. When looking at your financial plan, you can evaluate which supplemental policies can best help fill the gaps in your plan. Sometimes you can save the most money by NOT making a purchase when it isn’t essential.
Staying healthy is the ultimate way to save money
Research shows an apple a day really may keep the doctor away! No doubt you have been given the sage advice of maintaining good health over your lifetime. When we are young, most of us never really understand the advice. We eat what we want, and don’t put much thought into exercising for health benefits. Suddenly you wake up one day years later, and your bones creak as you reach for that morning cup of coffee. For many of us, this is the point in which we change gears and try to live healthier lifestyles. Maintaining a fitness program, and eating a balanced diet go much further than we ever expected as youngsters. Many individuals are able to ditch some of their more expensive medications because of their lifestyle changes. Check out the article Healthy Body, Healthy Pocketbook for a few awesome tips on staying healthy in retirement.
Review all of your insurance policies at least annually to make sure they working with you
It’s a good habit to revisit all of your insurance policies at least annually. I find it easiest to do during the annual benefits enrollment period. From time to time the coverage will change, or an employer will change insurance providers. Spending a little time going over the options may put a little more money back in your pocketbook.
I look back at my younger years, and long for the days when life seemed so much better when I were sick! At least now, I can get a little work done from home while binging Netflix!
Until next time…...this is Melissa Making Cents
Melissa Anne Cox
CERTIFIED FINANCIAL PLANNER™ is a College Funding and Student Loan Advisor in Dallas, Texas.