How to Reduce Healthcare Costs and Prepare a Healthcare Budget
Healthcare is expensive, so it’s important to plan ahead. Find out how to reduce healthcare costs and prepare your medical budget.
March 16, 2022
It’s no secret that healthcare is expensive in the United States. Total spending on healthcare in 2020 was $4.1 trillion, or $12,530 per person. This figure reflects total costs, including expenses paid by the US government and health insurance plans.
Typical out-of-pocket costs vary significantly by state and age group. For instance, median annual costs for those with health insurance ranged from $360 in Hawaii to $1,500 in Nebraska.
For uninsured people, the costs can be dramatically higher. For instance, the typical 3-day hospital stay costs around $30,000, while fixing a broken leg might cost around $7,500.
The takeaway here is simple: healthcare is expensive, even if you have health insurance.
With this in mind, how can we reduce healthcare costs in our own households?
How to reduce healthcare costs
There are a few strategies to reduce healthcare costs, like utilizing your insurance benefits, searching for discounts on prescription medication, using any government programs available to you and more. Let’s dive a little deeper into a few effective strategies to consider.
Understand the different types of healthcare costs
If you have health insurance, the key terms you should understand are:
Premiums: The monthly amount you pay for health insurance.
Deductible: The amount you have to pay out-of-pocket before insurance benefits kick in. For example, if your deductible is $500, you will pay 100% of the first $500 of expenses each year. After $500, insurance will pay their portion (which depends on the plan details).
Copayments: Copayments are a flat fee that you pay when you see a medical professional — like $30 when you see the doctor, for example.
Coinsurance: Coinsurance is a percentage of the cost of care — like 20% of the total cost of your care, for example.
If you don’t have insurance, 100% of medical costs will generally be your responsibility. With that said, make sure you utilize any government programs available to you for assistance with healthcare costs.
Enroll in government programs
Lower-income families can often qualify for free or reduced-cost healthcare plans.
Medicaid and related state programs offer quality health insurance coverage for low-income Americans. Find out if you may qualify based on your income level here.
For many households, premium tax credits may be available to lower the cost of health insurance plans through state marketplaces. Find more information on your state’s health insurance marketplace.
Utilize your health insurance benefits
If you have a health insurance plan, whether through work or through the marketplace, it’s important to understand what the plan does — and does not — pay for.
For example, many plans must cover 100% of preventative care costs, even if you haven’t met your deductible. This includes wellness screening visits, certain types of lab tests and immunizations.
Read the full plan coverage document for your healthcare plan in order to find out your benefits.
Save on prescription medications
Around 66% of Americans take prescription medications, and the average out-of-pocket cost is $177 per year. Keep in mind, this figure is substantially higher for certain groups, including older Americans and the uninsured.
How do you reduce prescription drug costs? Here’s a few ideas:
Buy generic: Generic medications work the same as brand name medications but are generally available at substantially lower prices.
Use GoodRx: GoodRx is a free service that you can use to print out coupons for discounts on prescription medication. It might sound odd, but pharmacists are now very familiar with the coupons. This service also makes it easier to compare prices between multiple pharmacies.
Consider larger prescription fills: If you have a copay when you pick up a prescription, chances are the copay is the same regardless of how big the prescription is. In other words, the copay will likely be the same for a 30-day supply as it would be for a 90-day supply. By asking your doctor for a larger prescription, you may be able to save on copays.
Use a health savings account (HSA)
A health savings account (HSA) can help you save money on taxes, while setting aside money to pay for future medical expenses.
Any money you put into an HSA is pre-tax, meaning you don’t need to pay income tax on it. You can then use HSA funds to pay for qualifying health expenses — and you still won’t pay tax. Interested in learning about more advanced HSA strategies? See our guide to HSA hacks.
Consider changing health insurance plans
Finding the right insurance plan for your needs is important. Consider these factors:
If you’re young and healthy, you can likely choose a plan with cheaper monthly premiums, but a higher deductible.
If you need medical care frequently, it’s likely worthwhile to pay higher monthly premiums for a better plan.
If you’re low-income, you may qualify for free or cheap medical insurance through Medicaid or a related state program. Find out if you may qualify based on your income level here.
Take care of your health
If you take steps to maintain a healthy lifestyle, you’ll be less likely to need medical care. Eating a balanced diet, getting adequate physical exercise, and improving your sleep quality can all potentially help you stay healthy.
Please note: The information presented in this article should not be considered as actionable healthcare recommendations. Please consult with your healthcare professional in regards to your own health situation before making any medical-related decisions.
Insurance plans have networks of preferred providers and healthcare facilities. In general, you will pay less at in-network providers than you will at out-of-network providers. Most health insurance plans have an online search feature or map that lets you search for in-network providers.
Prepare for medical emergencies and unexpected costs
Of course, we can never be too prepared when it comes to finances, so it’s wise to prepare for unexpected medical expenses. Ideally, this means having an emergency fund set aside. If you have these funds available, you will be less likely to have to use a credit card to pay for costly healthcare.
Do you have existing credit card debt? Tally† may be able to help. Tally is a personal finance app offering a lower-interest line of credit that may help qualifying Americans get out of credit card debt faster.
Negotiate medical bills
Did you know that you can sometimes negotiate medical bills and hospital bills? If you receive a bill that you cannot afford to pay, call the facility’s billing department to explain your situation. In some cases, they might be able to lower the bill, or at least offer you a payment plan to pay it off over time.
Carefully review medical bills
When you receive a medical bill, or an insurance statement of benefits, it’s important to read it carefully. Medical billing errors are frequent (see the most common errors here). If you notice an error, or just want to understand your bill, it’s worthwhile to call the medical provider and/or your health insurance company.
Building healthcare into your budget
An important and final tip is to budget for medical expenses – even in times when you are healthy and have minimal healthcare expenses.
For example, if your budget allows, set aside $100 per month to help cover future medical expenses.
By simply building a medical savings fund as part of your overall budget, you can be more prepared when expenses do pop up.
Having this financial cushion will also allow you to focus on rest and recovery, instead of worrying about how you will pay for your medical expenses.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.