Unless you have a reliable fortuneteller, there is no predicting your health care future. In 2013 over 20 percent of American adults were struggling to pay their medical bills and three in five bankruptcies were due to medical bills. Even with solid, comprehensive insurance coverage, about 10 million Americans will face bills they are unable to pay, reports Fox News.com.
What’s worse is that many older Americans are not putting aside enough money to pay for higher medical bills that inevitably happen with age. In 2009, Fidelity Investments estimated that a 65-year-old couple readying for retirement could expect to pay about $240,000 out of pocket for health care over the rest of their lives. Looked at another way, older Americans spend about 13.2 percent of their total expenditures on health, more than twice the proportion spent by all other consumers (6.6 percent).
There’s no denying that medical care is costly, and what insurance covers is sometimes hard to predict. Learning to super budget your health care dollars now is how to stay in charge of these expenses at every life stage.
The key to being able to pay for unforeseen health care expenses is planning. There are many vehicles that can help you budget for your immediate health care needs, and for those that are unknown in the future.
Health Savings Account (HSA)
You can accumulate tax-free dollars in a Health Savings Account (HSA), if you are enrolled in an HSA-qualified health plan. These savings can be used for the smaller health care costs like visits to the doctor and dentist, prescriptions and even eyeglasses.
The HSA is an IRA-like tax-sheltered account that an individual can establish and make pretax contributions to. Either you can use these funds to pay for medical expenses or they can roll over and accumulate through the years.
The money you can set aside is considerable.
|HSA Contribution Limit||$3,300||$6,550||+$1,000|
There is no “use it or lose it” feature common in flexible spending accounts, and savings roll over from year to year.
“Basically a lifetime of HSA contributions and tax sheltered growth accumulation for someone that leads a healthy lifestyle and has been blessed with a limited medical history can provide a financial cushion for the retirement years,” explains Robert J. Panzenbeck, an insurance expert.
Flexible Spending Accounts (FSA)
Flexible spending accounts are frequently a feature in larger corporate benefits packages. The FSA enables the employee to defer up to $2,500 per year into a flexible spending account that can be used to cover many out-of-pocket qualified medical expenses.
If the employee does not use the funds during the plan year, the money is forfeited. There is usually a grace period of typically 2-5 months that extends the period you have to spend the funds. As of 2012 there is an allowable rollover of up to $500 to the following year.
You CANNOT have a Health Savings Account if you have a Flexible Savings Account.
Long-Term (Individual) Disability Insurance
Long-term Disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time.
This insurance will pay up to 50-60 percent of an insured’s pre-disability earnings if the insured remains disabled through a waiting period. The waiting period is usually a minimum of 30 days, but typically lasts 90 days or six months.
It will continue to pay benefits to age 65 if the insured remains disabled. Individual policies are usually subject to rigorous medical and financial underwriting before the policy is approved.
Group Long-term Disability Insurance
Group long-term disability insurance provides up to 50-60 percent of an employee’s earnings if disabled with a usual waiting period of six months. There is typically a 12-month exclusion for any known pre-existing condition that the insured had in the 6 months prior to plan eligibility. Group LTD is coordinated with other social insurance disability plans. The commercial insurer’s benefit is reduced by amounts received from worker’s compensation and or social security disability.
Long-Term Custodial Care
Did you know that an elderly or disabled person who needs assistance in performing the activities of daily living is excluded from coverage on all commercial medical insurance plans as well as Medicare? To qualify for Medicare in a skilled nursing facility, your doctor must certify that the patient needs daily skilled care, like intravenous injections or physical therapy.
The cost of a nursing facility in New York Metro area that provides these services averages well over $300 per day. If one is impoverished, Medicaid will cover the cost. This care can be paid for using personal savings, liquidating assets or purchasing long-term care insurance.
Long-term care insurance purchased before age 60, with insurance riders providing a compound growth of plan benefits, can be an efficient vehicle for creating funds that will cover all or a substantial portion of the cost of long-term care.
A recent option is the addition of a long-term care insurance rider to a life insurance policy. This allows the policy to pre-pay a portion of the death benefits in the event that the insured needs long-term care.