The cost of healthcare has risen much faster than inflation alone can explain. Healthcare spending in 2007 came to $7,700 per person in the U.S., and by 2015 that number had risen 29% to $9,990 per person. The Centers for Medicare and Medicaid Services project that health spending will continue to increase at an average rate of 5.6% per year for the next 10 years. How can the average American afford to spend that much on healthcare?
Health insurance can literally be a lifesaver during a health crisis, granting patients access to treatments they could never afford to pay for out of pocket. Yet health insurance itself can be an immense financial burden, especially for those without access to employer-sponsored plans. For 2016, families who didn't receive an Affordable Care Act subsidy paid an average premium of $833 per month, or $9,996 per year. Given that the median household income for 2015 (the latest year for which census data is available) was $55,775, these families are paying an enormous percentage of their annual income in insurance premiums. Yet going without health insurance means running a huge risk of ending up with an unpayable medical bill.
Balancing premiums and deductibles
The deductible on a health insurance policy is the amount you have to spend out of pocket on covered healthcare services before the insurance kicks in and starts paying expenses for you. In most cases, the higher a policy's deductible is, the lower the monthly premium will be. However, if you have an expensive medical need, a high deductible can make it difficult for you to keep up with your medical bills until the deductible is met. That's why it's important to match your insurance policy's deductible with your available resources. For example, don't take a health insurance policy with a $4,000 deductible unless you're sure you can come up with $4,000 in cash if necessary.
If an expensive medical crisis does arise and you don't have adequate health insurance, you may be forced to pay for some or all of the expenses with a credit card. However, taking on thousands of dollars of credit card debt can put a serious hurt on your family's budget. Credit card companies are happy to lend you money because they can collect enormously high interest on that debt, and those high interest rates can keep your debt growing faster than you can pay it off. That's why it's extremely important to have an emergency savings fund that you can use as an alternative to credit cards.
Health savings accounts (HSAs)
A health savings account can help you avoid medical debt, save money on your taxes, and make it more feasible to participate in a low-premium, high-deductible plan. In order to participate in an HSA, you must meet certain requirements -- namely, your health insurance policy must have a deductible of at least $1,300 if you're the only covered person, or at least $2,600 if it's a family policy. Such a plan will have a relatively low monthly premium, and an HSA allows you to take those premium savings and stash them. Then, if you have a medical emergency, you can use the money in the HSA to cover your expenses until the deductible is met and your health insurance takes over. HSAs can give you a "best of both worlds" scenario, but only if you're careful to keep at least enough money in the account to cover a year's deductible.
Other ways to reduce healthcare costs
The best way to keep your healthcare costs low is to stay healthy. Of course, that's not always within your power, but you can increase your odds by getting exercise, eating right, and getting plenty of sleep. If you do run into trouble, keep your expenses low by using strategies to reduce prescription bills, asking for discounts on medical treatments, comparing costs on lab tests at different laboratories, and checking your medical bills for mistakes -- some experts say that as many as 80% of medical bills have errors (and guess what: Those errors are probably not in your favor). Deploying some or all of these strategies can help you keep your healthcare expenses to a manageable level. And if you're unfortunate enough to have a serious health crisis, you'll finally get something back for those high insurance premiums you've been paying all along.