My husband and I thought our out-of-pocket medical costs were high before having kids – imagine how we felt when we brought three children into the mix. Between doctor’s visits and prescription medications, we can easily spend more than $300 some months – and that doesn’t even include the cost of our health insurance.
We’re not alone. According to a study by the American Journal of Medicine, 62.1% of all U.S. bankruptcies in 2007 were medical-related, and of those who filed, 92% had medical debts exceeding $5,000. If you’re one of the many Americans struggling with medical expenses, there are several steps you can take to reduce the burden and free up some of your hard-earned cash.
1. Choose the Right Insurance Plan
Choosing the right insurance plan can help you keep your healthcare costs to a minimum – and it’s often about striking a balance. If you purchase a higher-cost plan, you could end up paying a larger annual health insurance premium for services you don’t end up using. On the other hand, if you opt for too low-cost a plan, you could have to foot many of your own bills out-of-pocket, which could end up costing you more than a higher premium.
Many healthcare plans impose an out-of-pocket deductible, which is a specific amount that you’re required to pay before your insurance company pays your claims. The lower your annual premium, the higher your deductible.
Typically, if your plan requires a deductible, you need to meet it before you receive any coverage. Let’s say you have a $1,000 deductible and you need two procedures that cost $1,000 each. In that case, you need to pay for the first procedure in full, and your insurance company pays for the second procedure, at which point you’re only responsible for the copay.
One exception to this rule is preventative care and doctor’s visits. Many companies do not require you to meet your deductible before paying for these. If you have a $1,000 deductible but see your doctor for your annual physical or the flu before that deductible is met, you are most likely going to be responsible only for your copay. However, that copay amount also does not count toward your deductible. Some plans also allow you to pay a copay for medications before your deductible is met.
Even if you opt for a more traditional plan with a lower deductible, you could still be responsible for a deductible of $500 or more. On the other hand, some plans don’t require a deductible at all as long as you stay in-network. Your exact deductible depends on the terms of your plan and the number of people in your family getting coverage. Some plans impose a per-person deductible, where each person getting coverage must pay out a certain amount before their deductible is met, while others come with a family deductible, where a typically larger out-of-pocket amount must be met, but can be shared among those family members covered under the plan.
Coinsurance, the percentage for which you’re responsible for paying upon meeting your deductible, is another factor to consider when choosing a health insurance plan. Think of it as a sort of cost-sharing arrangement with your insurance provider.
Let’s say your insurance plan has an 80/20 coinsurance policy once your deductible has been met. This means that once you’ve hit your out-of-pocket expenses, your insurance company pays 80% of the remaining costs, leaving you responsible for the other 20%. Sometimes, plans with higher annual premiums offer more favorable coinsurance splits, though this isn’t always the case.
A copayment, or copay, is a fixed amount you’re required to pay for medical services, including doctor’s visits and medications. Once you meet your plan’s deductible (or if you have a plan that allows a copay for services before you meet your deductible), you’re generally required to pay a copay for medical services such as sick visits, diagnostic tests, or surgical procedures. Copayments vary by plan, and it’s possible to have different copays for different services and medications within the same plan.
For example, some plans charge a certain copay for sick visits to a general practitioner, but charge higher copays for specialists such as endocrinologists and ophthalmologists. The same concept applies to prescriptions, where certain drugs cost more than others.
It’s often the case that plans with higher premiums offer lower copays. If you take prescription drugs, for example, your copay may be higher on a lower-cost plan than it would be on a plan with greater annual premiums.
Weighing Your Options
While choosing a plan with a low annual premium may seem tempting, it’s not necessarily the most cost-effective option. Imagine you’re offered the choice of two plans, one of which costs $1,000 per year with a $3,000 deductible and $50 in-office copays, and another which costs $2,000 per year with a $1,500 deductible and $25 in-office copays. If you don’t wind up getting sick or requiring medical services during your plan year, you come out ahead by choosing the option with the $1,000 premium.
Though you can do your best to estimate your medical needs and expenses, you never know what unexpected illnesses or injuries might crop up. Using our example, let’s say you wind up in the ER and are charged $3,000. Under the cheaper plan, assuming you use no other medical services that year, you’re going to pay a total of $4,000 ($3,000 for your out-of-pocket deductible $1,000 in premium costs). However, with the more expensive plan, assuming you use no other medical services that year, you pay just $3,500 ($1,500 for your out-of-pocket deductible $2,000 in premium costs).
Deductibles aside, it could still make sense to pay a higher premium for a plan with better coverage including lower doctor’s visits and prescription copays. To help decide, make a list of all the medications you take and review your bills from the previous year to see how frequently you and your family visited doctors and other medical specialists. While you can’t predict the future, you can make some educated guesses based on past data. Keep in mind that if you have children, you’re likely to find yourself at the doctor’s office for sick visits throughout the year, as kids tend to get exposed to a lot of germs at school.
No matter what type of plan you choose, it’s imperative that you take the time to understand your benefits before receiving medical services. Review which services are and are not covered, and find out if you need to obtain referral or preauthorization before moving forward with anything. This can help you avoid unexpected out-of-pocket costs that have the potential to wreak havoc on your finances.
Years back, a friend of mine visited a specialist who accepted her insurance, but she received a $300 bill in the mail when she was expecting to owe just a $40 office visit copay. It turns out her plan required a referral from her primary care physician to see that specialist, which she’d failed to obtain. As a result, her insurance company refused to cover her visit.
2. Use In-Network Providers
Insurance plans like to contract with certain doctors, specialists, hospitals, laboratories, and facilities. These providers are known as in-network. Typically, in-network providers agree to accept a specific contracted rate for their services, which is often lower than the amount they’d otherwise charge.
If you use an out-of-network provider, whether or not you do so by choice, you’re typically going to pay much more than you would with an in-network provider. Some insurance plans won’t pay for services provided by an out-of-network provider, which means if you use one, you could have to pay the provider’s bill in its entirety. Other plans require you to pay a higher copay or coinsurance percentage for using an out-of-network provider, while some impose a deductible that wouldn’t otherwise apply to an in-network provider.
The reason you’re likely to pay more out-of-pocket for out-of-network providers is that they aren’t contracted with your insurance company and therefore have the right to bill a higher amount for a given service than what an in-network provider would charge. Let’s say you need a mole removed and you choose an out-of-network dermatologist who charges $500. Your insurance company might reject that bill in its entirety, leaving you responsible for it. Or, if your coverage includes an 80/20 coinsurance split for out-of-network providers once your deductible is met, you’d be responsible for $100 of that bill, assuming your deductible has been met in full.
By contrast, an in-network provider might bill your insurance company just $100 for that same procedure, of which you might only be required to pay a $40 office visit copay. Depending on your coverage, coinsurance may not even apply when you’re dealing with in-network providers. This is why it’s important to check your benefits before opting for out-of-network services.
You can save money on your medical costs by sticking to in-network providers whenever possible. However, keep in mind that just because your insurance company lists a provider or facility as in-network doesn’t mean you’re automatically covered for all services rendered.
Though I made sure to deliver my twin babies at an in-network hospital, the doctor who performed my newborns’ hearing tests wound up being out-of-network. I learned this the hard way when I received two bills in the mail for $375 each. When I filed an appeal with my insurance company on the basis that I wasn’t informed of the provider’s out-of-network status (and had no choice but to use his services since he was the only one available to perform the tests that day), my insurance company agreed to pay $150 of each bill, as that’s the amount it typically pays contracted hearing test providers. Unfortunately, that still left me responsible for a $225 balance per child for the amounts not covered by my insurance company.
3. Be Smart About Prescriptions
Whether you’re single or have a family, prescription costs can really add up over the course of a year. The amount you pay for your medications depends on your specific insurance plan and the type of drug in question. Some plans have a tiered system where certain medications have higher copays than others.
You can save money on your prescriptions by taking one or all of the following steps:
- Obtain 90-Day Supplies. Some insurance companies offer significant discounts on medications if you order a 90-day supply, as opposed to renewing your 30-day prescription on a month-to-month basis. To qualify for a discount, you may need to order your medication through a specific pharmacy or mail order service. Depending on your prescription coverage, the base price of a 90-day supply may actually be lower per unit than that of a 30-day supply. Under my plan, for example, a 30-day supply of one of my once-per-day meds costs $20, whereas a 90-day supply costs only $10. This means that I’d pay $0.67 per pill using a 30-day supply, but just $0.11 per pill using a 90-day supply.
- Ask for Generics. Some insurance companies charge higher copays for brand-name drugs than they do for generics, which is why it always pays to ask your doctor if there’s a generic version of your medication available. Most of the time, generic medications work exactly like their brand-name counterparts, only they’re much cheaper. However, if you’re going to use generics, be advised that according to a Supreme Court ruling, makers of generic drugs cannot be sued for adverse reactions to their products, which does raise some potential safety concerns. If you’re worried about taking a generic, discuss the risks with your doctor. When I switched from a brand-name drug to a generic a few years back, my out-of-pocket cost went from $50 to $10 per month.
- Request Samples. Pharmaceutical companies have a practice of supplying doctors with samples of their products. If you’re prescribed medication, try asking your physician for a sample. Depending on your coverage and how the medication in question is dispensed, you could cut your costs significantly by getting even a few free doses.
- Use Over-the-Counter Remedies in Lieu of Prescribed Drugs. It’s not always necessary to take prescription drugs to address a medical issue or health concern. If you’re prescribed a medication that proves to be costly, ask your doctor if there’s a lower-cost, over-the-counter solution to your problem. A friend of mine did this when she was pregnant and didn’t want to pay her $50 monthly copay for prescription prenatal vitamins. Her doctor helped her find an over-the-counter alternative for just $25 per month.
4. Review Your Bills & Statements Thoroughly
Those “explanation of benefits” (EOB) statements from your insurance company may seem like a waste of paper, but in reality, they’re important documents and worth reviewing. An EOB is your insurance company’s way of explaining to you, in detail, which services or claims it did and did not cover.
Some people have a habit of tossing these in the trash without reading them, but by doing so, you could cost yourself a fair amount of money. You never know when your insurance company might process a claim incorrectly, or deny a service because it was billed incorrectly. The more closely you review your EOB statements, the more likely you are to catch any errors that work in your favor.
The same strategy applies to the bills you receive directly from your providers. Always read through each line item before agreeing to pay the amount being billed. If the bill you receive isn’t itemized, ask for a breakdown of the fees involved, and always check your bills for mathematical errors.
Additionally, before you pay any provider directly, make sure the bill in question was actually submitted to your insurance company first. Sometimes a provider neglects to bill your insurance company, or submits a claim incorrectly. When a provider doesn’t have your current insurance information on file or receives a claims denial from an insurance company, the next move is often to send the bill straight to the patient. It’s therefore your job to make sure you’re truly responsible for paying the bills you receive.
5. Lower the Bills You’re Responsible for Paying
Even if you’re vigilant about verifying your coverage in advance and attempting to choose in-network providers, you may find yourself stuck with some medical bills that can throw you for a financial loop. While you can’t just ignore those bills, there are some moves you can make to mitigate the financial damage they might cause.
Before you pay, take the following steps:
- File an Appeal With Your Insurance Company. The amount of time you have to file an appeal varies by plan, so be sure to act quickly if you receive notice that a claim has been denied. Even if your initial appeal is rejected, you typically have additional recourse, including the option to file a second appeal.
- Negotiate With Your Provider for Non-Covered Services. Once you run out of appeal options and find yourself on the hook for a medical bill, you can try negotiating with the provider who issued the bill. A provider might offer you a discounted rate if you explain that you’re paying out-of-pocket – perhaps to be charitable, but certainly so the provider can increase its chances of getting paid. When a friend of mine received a $2,500 bill for NICU services that turned out not to be covered by her insurance company, she called the provider and stated point-blank that she just couldn’t afford that amount. The provider wound up reducing her bill to $1,500, which she then paid off in installments.
- Enlist the Help of a Health Advocate. If you’re unable to resolve your billing issue on your own, a professional health advocate may be able to help. A health advocate is someone trained to negotiate medical issues on your behalf, including financial issues. Some companies provide a health advocate service to their employees – if you’re facing high medical bills, it pays to see if your company offers this benefit. If you don’t work for a company that provides this service, you can access a free health advocate via the Patient Advocate Foundation.
6. Pick the Right Facility
Your cost for a particular service could vary based on where you have it performed. Even if you choose an in-network facility, depending on your coverage, some tests or procedures might be less expensive when performed at a laboratory or imaging center as opposed to a hospital.
Similarly, a walk-in clinic or urgent care facility may be cheaper than an ER. If you’re faced with a non-emergency situation – the type where you’d consider an ER only because it’s the weekend and your doctor may not be available – it pays to see whether there’s an open walk-in clinic or urgent care facility to visit instead. Some walk-in clinics even offer sliding scale fees based on income, so you could end up saving money by qualifying for low-cost treatment.
7. Seek Out Preventative Care
It’s most cost-effective to address medical issues early on before they escalate into full-blown problems. Many insurance plans offer participants a yearly physical at no cost because preventative care saves insurers money in the long run. If you’re offered the option of a free physical or annual exam, take it. It’s good for your health, but it can also help prevent costly medical problems down the line.
During a routine exam, my friend’s doctor discovered a growth on her thyroid by simply feeling around. Further testing revealed that it was cancerous, but because it was caught early, the issue was resolved with minimal treatment. Not only did this save my friend money, but it quite possibly saved her life.
8. Question Your Doctor
Doctors and other medical professionals may have their patients’ best interests at heart. However, sometimes this means ordering pricey tests or procedures in an attempt to cover all bases and provide the most comprehensive care. If that translates into extra out-of-pocket expenses for you, you may want to question your doctor before jumping in.
If you’re presented with a test or treatment option that your insurance company won’t cover, or one that is covered but costs you a huge amount of money nonetheless, ask your doctor if you really need it. If you explain the financial implications, your doctor may be able to work with you to come up with a more cost-effective alternative.
If, after having the conversation, your doctor insists on the initial course of testing or treatment prescribed, you still have options for reducing your out-of-pocket costs. First, you can ask your doctor to write your insurance company a letter of medical necessity, which is a letter that seeks to convince an insurance company to pay for a service it normally wouldn’t cover on the basis that your particular situation warrants the exact treatment in question.
If that doesn’t work, your doctor may be willing to work with you to perform the service at a reduced cost. And don’t forget, you always have the right to refuse a certain test or procedure if you’re uncomfortable with it or don’t think it’s in your best interest. The key is to speak up and explore other avenues before agreeing to something you know will end up being a financial burden.
9. Get a Flexible Spending Account (FSA)
While a flexible spending account (FSA) won’t reduce your actual medical costs, it can help you save money on healthcare expenses by allowing you to allocate pretax dollars toward qualified items such as prescriptions, in-office copays, and eyeglasses. You can sign up for a flexible spending account through your employer. From there, you just need to figure out how much money to allocate toward it.
According to IRS guidelines, you can allocate a maximum of $2,550 from your annual income to your FSA. This means that if your normal income tax rate is 30%, you can save about $750 over the course of a year by maxing out your FSA contribution and using all those funds to pay for medical care.
The catch is that your money is allocated on a “use it or lose it” basis. If you decide to put the full $2,550 into your FSA but only incur $1,550 in eligible medical expenses over the course of the year, you lose your last $1,000. To avoid this problem, go through last year’s records to see how much you spent on medical fees and add in your estimated prescription costs for the medications you’re currently taking. This should help you determine the right amount to put in your FSA.
If you do wind up allocating too much money to your FSA in a given year, don’t panic. You may be able to prepay some of the following year’s expenses to use up your money, or schedule an upcoming exam or procedure early. This happened to me a few years ago, when I found myself with an unused balance of almost $200 before the deadline to deplete my FSA balance. To avoid wasting the money, I ordered new lenses, even though I knew I didn’t need them for a number of months, and renewed a prescription medication early to use up my remaining funds and save myself some money in the new year.
When it comes to saving money on healthcare costs, one of the best things you can do is be proactive and well-informed. No matter the situation, take the time to understand your benefits and treatment options to avoid unpleasant surprises when those bills come in. Remember, you always have the right to refuse treatment or seek out alternative options if you feel that the cost you’re presented with is just too high.
How much money do you spend each year on medical costs? What steps have you taken to reduce your expenses?