budgeting for deductibles

[lazygood4nothinbum]

i've got a $1k deductible on my car insurance and almost $3k on medical. i've made one claim in the last 20 years or more on the car, none ever on the house & i put so much time, effort & expense into healthy living that i doubt i will ever use up that $3k on health insurance.

but when i budget for the year i include my deductibles as part of my monthly budget, thinking that if i don't use that money for its intended purpose i can always put it towards something else the following year.

i've been considering upping my medical deductible to decrease my monthly premium, and taking at least some of the deductible out of my monthly budget. then if i needed the deductible one year i guess i would just take the hit. but i'm not sure how to play this.

how do you budget for non-recurring deductibles?

and (this part should be in health-related topics i guess) should something happen that i ever require continuing medical care, if i have a high deductible, would i be able then to lower the deductible while keeping the same policy?

[chinaco]

Can an individual do a Health Care Savings Account and put before tax wages in it?


I was wondering about that. I am not sure how it even works.


My thoughts were... if we could do that, I would seed a fund with pre-tax money today while I am still working. If the money could be applied to deductibles and other medical expenses income tax free later... It would probably be a good idea.

Do I have that sort of option available to me as an individual?

[JohnDoe]

I don't budget for non-recurring deductibles. That's what an emergency fund is for. I have high deductibles on all my stuff. Should I need to pay one, I would tap my cash reserves.


JD

[MooreBonds]

Quote:

Originally Posted by lazygood4nothinbum i've been considering upping my medical deductible to decrease my monthly premium, and taking at least some of the deductible out of my monthly budget. then if i needed the deductible one year guess i would just take the hit. but i'm not sure how to play this. how do you budget for non-recurring deductibles?

I also wrestled with this issue, although for not too long, since I'm still a wage slave in the w*rking realm. My decision was to put a category in my balance sheet as both an asset ("Health Care Allowance: $2,000") and a liability ("Health Care Reserve: $2,000"). That way, if/when I do need it, it won't hit my net worth, and I don't need to budget for it each year (since I also strive for never needing health care beyond checkups). My health insurance deductible was $2,700, but I upped it to $5,100 this year.

I used to go without any reserve, and figured that I'd never need to spend anything. Of course, 2 months after that, a pain in my head ended up with me forking out $1,700 for a doctor's visit, MRI, and a radiologist to view my MRI (thank God, nothing was wrong). So, as a result, I ended up with my reserve approach with my cost allocation.

Since you live a healthy lifestyle, I wouldn't recommend budgeting each year, since you reasonably don't expect it (just as you don't reasonably expect your house to get sucked up in a hurricane and need to pay the deductible for your homeowner's insurance each year).

I do have an HSA, so that kind of takes care of the allowance part...but just keep a stash for your deductibles you probably won't need (but have ready if and when the time comes) in readily-accessible instruments (older, higher-yielding I-Bonds if you have them, or a $1,000/$2,000 CD that could be cashed in early with a small penalty if need be, or a MM account).

[PBAT]

Chinaco - I believe you have to be enrolled in a health plan that is defined as a high deductible health plan (HDHP). And I believe the minimum deductibles are $1200 individual/$2400 family, but not all plans with those deductibles are defined as HDHP.

[audreyh1]

Quote:

Originally Posted by JohnDoe I don't budget for non-recurring deductibles. That's what an emergency fund is for. I have high deductibles on all my stuff. Should I need to pay one, I would tap my cash reserves. JD

Same here - or close.

I have a big chunk set aside annually for "Special Expense". It covers occasional purchases of new toys among other things. This can be tapped into to cover deductibles if needed.

Audrey

[TromboneAl]

Quote:

i put so much time, effort & expense into healthy living that i doubt i will ever use up that $3k on health insurance.

But deep down you know it doesn't work that way. You can have great tires on your car, and still crash.

And don't forget to run a spreadsheet on the overall costs of the different deductibles, as the results can be surprising.

[megacorp-firee]

We don't budget for deductibles and the like. We use our emergency fund for that. As you have stated, you very infrequently have to use these

After being on this board for a little while now, I am feeling a little more comfortable and have been 'soapboxing' some of my philosophical approach to life.

In general, when you plan, you should plan for the general case, figure out any things that are real and common exceptions and plan for those too.

For true exceptions, you handle them when they come up. If you try to plan for all contingencies, you get into analysis paralysis and never get to end of job (hence the guys obsessively running and re-running their spreadsheets to account for the last penny). Just know that you will have these exceptions and don't panic when they happen.

Financially you have your 'slush fund' or emergency fund to handle. The more nervous you are, the larger the fund should be. After a while, you'll find the right 'balance'.

Hope this helps.

[lazygood4nothinbum]

thanx all. great input. i did start my private medical insurance this year with hsa but i wasn't really sure how to use it. oh, so this is how it's used. i knew there was a good reason why i signed up for one; i just didn't know what my reason was. also i like the idea of placing the entry on both sides of the balance sheet, if only i kept balance sheets. as seriously as i've taken the rest of life, i've sort of retired by the seat of my pants.

good to have some guidelines though. i'd hate to be playing on an edge and actually fall off. that would suck.

chinaco, as i understand hsa's, you can fund them with pre-tax money. i have to re-research it but i think i read that you can also even transfer pre-59 & 1/2 ira money into an hsa without early withdrawal penalties.

probably if i was more systematic about life i wouldn't have to redo all that work. oh well, what else do i have to do all day.

[MooreBonds]

Quote:

Originally Posted by TromboneAl And don't forget to run a spreadsheet on the overall costs of the different deductibles, as the results can be surprising.

I second that.

real-life example (from 2007 premium analysis)
$5,100 deductible $37.49 monthly premium
$3,000 deductible $47.56 monthly premium
$121 annual savings by going with $3,000 deductible

Just using crude math (assuming no return on annual deductible savings), I would have to live for about 17 years without a major 'incident' costing more than $3,000 but less than $5,100 in order to come out ahead with the higher deductible.

If something were to happen to me that required spending $3,000, then it would likely be serious enough to end up costing more than $5,000. However, I went ahead and rolled the dice and went with the higher deductible. If I were 50 years old, I might not take that chance.

Another way of looking at it: If I did end up having expenses resulting from an incident (read: health care problem), then my premiums for every deductible would undoubtedly go up, and I might be forced into the higher deductible anyway since that's all I might be able to afford. So, might as well save an additional $121/year now while I'm healthy since I might end up with the higher deductible if something happens anyway.

[RASAP]

Quote:

Originally Posted by MooreBonds Just using crude math (assuming no return on annual deductible savings), I would have to live for about 17 years without a major 'incident' costing more than $3,000 but less than $5,100 in order to come out ahead with the higher deductible.

If in late December, a "major incident" happens costing greater than $5,100 (prior to the end of the year), and due to the extent of the 'incident', you are treated throughout the next month incurring additional expenses (greater than $5,100 in the new year), will you now pay 2 deductibles for this single 'incident'?

[ksr]

I keep an item in my budget for the inevitable "something" that comes up almost every year. I don't earmark it for a specific purpose, but figure it will end up going towards an unexpected car repair, home repair, vet bill, or medical cost. I don't use it every year, but it gives me peace of mind if something big hits that I've actually accounted for it.