How to set a health care budget and lower your medical expenses

Parent and child grocery shopping

It can seem difficult to plan for your health care costs each year. But it can be easier than you may think. By better understanding your health care spending, you can have better control of your expenses. Here’s how to set a health care budget, find a health plan that’s right for you and your family, and better prepare for the unexpected.

Review how much money you make and spend each month

Before you build your health care budget, you’ll want to look at your overall budget. You can start by looking at your monthly income and expenses.

Start with tracking your essential living expenses, like:

  • Housing and utilities
  • Groceries
  • Transportation
  • Childcare
  • Insurance (home and auto)
  • Loan and credit card payments
  • Health care

You can’t change how much you’ll spend on some of these expenses. But your budget will help you see how you’re spending your money.  That way you can make changes to help you better manage your costs.

Look at your health care spending during the year

In the same way you break down your monthly spending, you can break down your medical expenses. Here are 4 ways you may spend on health care:

  • Monthly fees: Your membership fee is the biggest fixed cost you can expect to pay for coverage.
  • Routine care: This includes regular doctor visits and prescriptions. Look at what you spent on doctor visit costs, such as copays or coinsurance. You can also estimate many of these costs by looking at your health plan’s coverage documents.
  • Other health needs: Remember to consider spending on other health care, like new glasses or dental work. Look to see if your health plan includes vision or dental coverage.
  • Unexpected care: A medical emergency or illness can lead to an unexpected medical bill. And that can lead to extra spending and stress if you haven’t budgeted for that cost. In 2024, the average out-of-pocket payments for an individual on employer-based coverage was $1,368 per year, while the average for families was $6,296.* 

So, if your plan has a deductible, you might need to pay much of it — or all of it — if you have unexpected hospital visits or expensive procedures.

How to find a plan that fits your budget

Once you have a better idea of your health care costs — and what you’re able to save for the unexpected — you can find a plan that fits your needs.

Keep in mind that you’ll want to match health care costs with predicted risk. There are generally 2 options to consider:

         Option 1:  Higher monthly fee, more coverage

With this option, you’ll pay more each month. But you may save money once you factor in your health costs. This may be the right option for you to consider if:

  • Your budget shows that you expect to pay a lot for health care and prescriptions
  • You want to be covered in the case of unexpected health needs

         Option 2:  Lower monthly fee, higher deductible (out-of-pocket costs)

With this option, you can save money if you don’t end up needing care. This may be the right option for you if:

  • Your budget shows that you expect to pay little for health care and prescriptions
  • You plan to set aside money for your health care budget
  • You’re comfortable risking unexpected costs if they come up

Find other ways to save

Planning ahead can help you make healthier choices — physically and financially. You can take other steps to help lower medical bills. For example, by taking generic instead of brand-name medications or estimating your costs before you get care. 

You can also make lifestyle changes like staying physically active, eating healthy, and learning how to manage stress. Visit our Health & Wellness site for ways to maintain a healthy lifestyle.

Learn more about health care costs

*"2024 Employer Health Benefits Survey," October 9, 2024, Kaiser Family Foundation.