How to set a health care budget

In part 2 of this 4-part series on health care costs, you can find ways to budget health care costs that will help you save money. Read part 1: What to know about health plan costs.

Planning for your health care costs each year might feel daunting, but it’s easier than you may think. With a health care budget, you can have better control of your expenses throughout the year, find a health plan that’s right for you and your family, and prepare for unexpected spending.

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

For some of these expenses, you can’t change how much you’ll spend. But your budget will help you see how you’re spending your money so you can make adjustments to help you better manage your costs.

Look at your health spending throughout the year

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

Monthly fees: Your membership fee, often called a premium, is the biggest fixed cost you can expect to pay for coverage.
Routine care: This includes regular doctor visits and prescriptions that you and your family need. Look at what you spent on copays or coinsurance for these services or estimate many of these costs by looking at a health plan’s coverage documents.
Other health needs: Don’t forget to consider spending on other health-related 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 extra spending and stress if you haven’t budgeted for the unexpected. For example, in 2019, the average out-of-pocket payments for an individual on employer-based insurance was $1,242 per year, while the average for families was $6,015.* So, if your plan has a deductible, you might need to pay much of it — or even all of it — if you have unexpected hospital visits or expensive procedures.

How to put the pieces together to support your budget

Once you have a full picture of what you normally spend on care — 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. Generally speaking, there are 2 options to consider:

Option 1: Higher monthly fee, more coverage

With this option, you’ll pay more each month, but 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 as long as you don’t end up needing to go in for care. This may be the right option for you to consider 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. But budgeting isn’t the only thing you can do to find ways to save on health care. Check out our third article in this series: How to save money on health care costs.

*“2019 Employer Health Benefits Survey,” September 25, 2019,
Kaiser Family Foundation, https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/