Putting aside money for emergencies, like replacing a roof or a major car repair, is one of the age-old mantras of personal finance.
But today there’s one major potential expense that, until relatively recently, few working people rarely thought about: Paying for out-of-pocket medical costs.
Why? Because until the past decade or so, most employer health care plans covered the majority of employees’ medical costs.
The spiraling cost of health care has resulted in many employers shifting more of these expenses to employees. Monthly premiums for traditional health care plans that used to be fairly reasonable now may cost $600 per month or more. And most of these plans have annual deductibles — money you must pay out of pocket for medical expenses before the plan takes over most of the costs.
Since most employees can’t afford these plans, many companies now also offer high-deductible health plans (HDHPs). How pervasive are these plans? In 2019 51% of all U.S. employees were enrolled in HDHPs.
And for those who aren’t covered at work and have to purchase their own health insurance, HDHPs generally offer the lowest premiums of plans available in state and Affordable Care Act insurance marketplaces.
However, someday — maybe a few years from now, maybe next week — you will need medical treatment for an injury or a major illness. If you’re not financially prepared, you may discover the hard way what “high-deductible” really means.
Three kinds of expenses
Your HDHP may state that it has a $4,000 annual deductible. That means you’ll have to use $4,000 of your own money to pay for medical treatments before the plan starts covering some of the costs. If you don’t believe you’ll have to pay that much, think again. In 2018, the average cost for a knee replacement was $35,000. For spinal fusion, $110,000. Thinking of having a child? It could cost you $4,500 or more once all pre-natal care, delivery and post-partum expenses are tabulated.
As a participant in an HDHP, I’ve personally experienced the painful price of health care. Last year I was healthy for most of the year, but the costs for one visit to an out-of-state emergency room and follow-up appointments ate up my entire $2,800 deductible.
Thankfully, my deductible was relatively reasonable, considering that in 2020 the average deductible for individual subscribers was $4,364 and $8,439 for those with family coverage, according to research conducted by eHealth.
But your expenses may not end when you hit your deductible limit. Many HDHPs require to you to continue to pay partial costs through co-payments and co-insurance.