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Three Ways to Prepare for Unexpected Medical Expenses

unexpected medical expensesDue to the unpredictable nature of medical expenses, they can be difficult to prepare for. But if we don’t prepare for them, they can potentially prevent us from accomplishing our financial goals.

From personal experience, I know that not having a plan for these expenses can lead to credit card debt. In this article, we will discuss some ways to prepare for these expenses so you can avoid a similar fate.

Three Ways to Prepare for Unexpected Medical Expenses

According to a Market Watch article,

“More than two in three bankruptcies are caused by medical problems, due to medical bills, income loss due to illnesses, or both.”

Although this statistic may alarm you, there are some steps we can take to minimize our risk of having to file for bankruptcy.

Related: Top 5 Reasons People Go Bankrupt and How to Avoid It

1) Enroll in your Employer Sponsored Health Insurance Plan or Consider Alternative Options

One way to minimize your out-of-pocket healthcare expenses is to enroll in an employer sponsored health insurance plan. After foregoing health insurance in my younger years, I decided to enroll in this plan. If you have access to this option, your employer will pay a portion of your insurance rate each pay period.

For example, I pay $32.99 every two weeks for a high deductible healthcare plan; my employer pays $256.20 every two weeks.

In addition to healthcare insurance, you may be able to obtain dental and vision insurance through your employer. Be sure to read your open employee benefits guide to make sure.

Alternative Options

If your employer doesn’t offer a plan, or you are self-employed, look into purchasing a health insurance plan from

You can currently enroll if you’ are facing these life changes:

  • Lost employer-based health coverage
  • You are expecting a baby

Keep in mind that the above option may change if new legislation is passed. Be sure to do your due diligence. A more expensive option would be to choose COBRA coverage.


Under COBRA, you can extend your coverage for 18 months. But here is the catch, you have to pay your portion of the policy, as well as the portion your employer was paying.

So, imagine for a second that I lost my job and wanted to continue my coverage, here is what I’d have to pay:

  • $256.20 (employer’s bi-weekly portion) + $32.99 (my bi-weekly portion) equals $289.19 per week

That’s a huge increase for coverage. On top of that, I’d have to pay a 2% administration fee.

The next option may be worth looking into if you cannot afford COBRA. You may be able to find a cheaper option there.

Purchase Private Health Insurance Directly from an Insurance Company or Insurance Broker

The final option I found while researching was to buy a policy directly from an insurance company or insurance broker. If you decide to go this route, I would encourage you to do a thorough job of researching the cost and benefits of the plan.

To avoid an online financial scam, also do some research to make sure the website is legit. It might make sense to only visit a well-known insurance company’s website. In my case, I visited Blue Cross Blue Shield’s website to shop for insurance.

2) Use Healthcare Savings or Spending Accounts to Save for Medical Expenses

To further minimize out-of-pocket expenses, it may be worth it to sign up for a health savings or flexible spending account. I have experience with using the former.

  • Health Savings Account
  • Flexible Spending Accounts

bankrupt because of medical debtUsing a Health Savings Account to Save for Medical Expenses

A health savings account is a account that is designed to pay for medical expenses. At the moment, a single person can contribute $3,550 a year to this account. It is tied to a high-deductible healthcare plan, which the IRS defines as a plan with a deductible of $1,400. You can use it to pay for out-of-pocket expenses such as hospital visits, dental procedures, and prescription eyeglasses.

I decided to get an HSA after hearing about these three tax benefits:

  • Contributions are tax-free
  • Tax-free growth when investing
  • Withdrawals are tax free when used for qualified medical expenses

My plan was to use it as a retirement account, but that plan fell apart when I faced some unexpected medical expenses. This year alone, I have spent $2,000 from my HSA. Although I am disappointed my plan failed, I am grateful that I had the money set aside. Plus, since I hit my deductible early, my out-of-pocket expenses should be minimal for the rest of the year!

The thing I love most about the HSA is that the money you put in it rolls over every year, unlike the flexible spending account.

Related: 5 Things You Didn’t Know About a Health Savings Account

Using a Flexible Spending Account

The flexible spending account is designed to help you pay for medical expenses throughout the year. You can contribute $2,750 a year to it. Unlike the HSA, it is not tied to any health insurance plan.

If you don’t use the money in your account during the year, you lose it. But it can be a great way to reduce your taxable income and pay for expenses not covered by your health insurance.

Which Account Should You Use?

The answer depends upon your financial circumstances and your health. If you know you are going to spend the money throughout the year, the flexible spending account would probably be a good decision.

On the other hand, if you are healthy and want to grow your money by investing your savings, a health savings account would likely be your best bet.

3) Consider Purchasing Short-Term and Long-Term Disability Plans

How long would you be able to survive without an income if you were sick or injured? If your answer is not long, then you should consider purchasing a short-term and long-term disability plan.

In the case of an accidental injury or prolong sickness, these plans can provide you with up to 60% of your income while you recover.

You could use this money to pay for bills and out of pocket medical expenses. Plus, it could potentially help you avoid bankruptcy that was mentioned at the beginning of the article.

What if you cannot take these steps now to prepare for future medical expenses?

Since the open enrollment period for health insurance usually takes place between November and December of the previous year, you may not be able to take the above steps…yet. If this is the case, don’t panic. Now is the perfect time to do some research on some of the accounts/insurances listed above.

In the meantime, consider getting rid of some expenses and reallocating the money to your emergency fund. That way you don’t have to rely too heavily on credit cards if you encounter unexpected medical expenses.

How do you prepare for unexpected medical expenses? Do you have an HSA or flexible spending account?

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AUTHOR Jerry Brown

Jerry Brown is an adventurous bibliophile who loves personal finance. He is the mastermind behind the blog Peerless Money Mentor. When he is not reading thought-provoking books or studying finance, he is spending time with family, biking, or taking a random adventure somewhere.

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