Preparing for an "OOPs"
Preparing for an OOPs: Saving ahead for inevitable medical expenses
What if you don’t get insured? Bad idea. Just a really, really bad idea. Everyone needs health insurance. Period. Take a tumble while snowboarding for the first time or have an expensive chronic illness? You still have to pay, even if you don’t have the money.
Before I get too far onto my soap box, let’s get some jargon out of the way. There are three pieces of healthcare jargon that you must understand, unequivocally:
Deductible - the amount you must pay before the plan pays anything for your claims (with the exception of preventive care). Once you meet your deductible in a calendar year, the plan will pay covered claims subject to you paying a certain percentage
Co-insurance - the percentage that you will pay on medical bills once you meet your deductible
Out-of-pocket maximum (a.k.a. “OOPs”) - the maximum amount you will pay in a given calendar year
Did you know that even if you pay hundreds of dollars in premiums, that one drunken kickball game gone bad and your torn ACL could cost you $8,000? See, what happens is that you first hit your deductible of $7,000, meaning every single healthcare expense you incur will be paid by you. Yes, you. But some of your expenses, even after you hit the deductible, will not be picked up by insurance 100%. Instead, they are paid through co-insurance in which you and the insurance company are co-insurers— the company will pay 50% of all expenses but you still have to pay the remaining 50%. Relief does not come until you, yourself, and your checkbook have written checks in one year totaling $8,150. That is your out-of-pocket maximum, or, again, the “OOPs.” Then, finally, the health insurance pays 100% of the costs.
Uncle.
So, either figure out how to get really rich or start building up a healthcare war chest immediately. You literally cannot afford to make a mistake. Not one.
Paying premiums either happens through pre-tax deductions out of your paycheck, or if you own a business or are a gig worker then would pay your premium as a monthly bill. Assuming you make a life budget of your bills before you make major decisions like how much house or car to buy, you should be fine in that department.
But the killer you need to defend against is the OOPs. God forbid you experience an OOPs. The moment you sign up for your health insurance, just look for the number next to “out of pocket.” THAT is your health savings goal, and you need to hit that number as quickly as possible, hopefully in a year or two. Let’s say your OOPs is $10,000; you need to save $400-$800 per month for a year until you have that buffer.
Where to save it is interesting. You can save into a regular savings account for these other savings goals, but for healthcare it’s a little different. The federal government has an account for you if you have one of these high deductible healthcare plans. Literally, that’s the name of it—a high-deductible healthcare plan, or HDHP. Sometimes they will say “HSA eligible.” In this case, you have the right to open and deposit into a health savings account through your company if it is offered, through your bank, or through some online HSA providers.
Want to learn more about setting up and investing in an HSA? I’m sharing a video with newsletter subscribers, walking you through the process. Click the button below to join the Ladysplaining email list for this and other exclusive content.