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How to Handle Medical Expenses That Are Out of Pocket

How to Handle Medical Expenses That Are Out of Pocket

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If you’re lucky enough to have comprehensive medical and dental insurance, your plan will take the brunt of your surprise healthcare costs.

Insured though you may be, you aren’t entirely off the hook. Most plans expect you to handle some out-of-pocket expenses before your insurer takes care of the rest of the bill.

What Are Out-of-Pocket Expenses?

Out-of-pocket expenses (OPE) include any healthcare cost you must pay using your own cash. It earns the name because it’s money coming out of your pocket or, in most cases today, your bank account or a line of credit.

OPEs come in three major forms:

1. Deductibles

Perhaps the most common OPE is a deductible. This is a predetermined amount you must cover in a year before your insurance company takes over the rest. According to Investopedia, the average deductible can be as high as $2,295. With this deductible, you are responsible for the first $2,295 spent on your health before your insurer covers the rest.

2. Co-Pays

Another common OPE is a co-pay, which represents the set rate you must pay for each medical service you require. For example, your co-pay for a general check-up may be $20. This co-pay generally doesn’t count toward your deductible.

3. Co-Insurance

Co-insurance, on the other hand, represents a percentage of the costs you must pay after you surpass your deductible limit. This means you may pay for a fraction of your medical costs after you’ve met your deductible. A common ratio is the “80/20” plan, which means you pay 20% of the bill after you’ve paid your deductible and your insurer covers the remaining 80%.

How to Handle Out-of-Pocket Expenses

With global healthcare costs rising alongside runaway inflation, these expenses have never been higher. Here’s how you can afford these climbing costs.

1. Emergency Fund

One of the best ways to handle OPEs is with an emergency fund. These savings are quick and convenient to access in your time of need. Most financial advisors recommend saving three to six months of living expenses in this account.

2. A Line of Credit

Even three months of living expenses is an enormous cash goal that may take time to achieve. If your emergency arrives before you save up enough, a line of credit can work as a backup. An online line of credit offers a fast, convenient application you can access over the web, so you don’t have to find time to go to a bank when you’re ill or injured.

When it comes to an online line of credit, the lending experts at MoneyKey encourage you to shop around for rates. Use these costs to see how a line of credit will fit into your budget once you charge your expenses to the account.

While most online lines of credit have a minimum payment available, you should always strive to pay as much of your balance as possible. This comes with a few perks:

  • Takes control of your debt.
  • Frees up your line of credit limit.
  • Reduces how much interest and finance charges you accrue.
  • Potentially insulates your credit score from negative entries.

Be Prepared for Out-of-Pocket Expenses

OPEs like deductibles, co-pays, and co-insurance are a reality of being insured. At the end of the day, paying these OPEs can be more manageable than covering your full healthcare costs on your own. So don’t cancel your insurance. Beef up your emergency fund and keep a line of credit on standby.