Creating a Budget for Your Child’s Medical Expenses

Being a parent involves countless what-ifs. Questions such as, “What if they never sleep through the night?” or “What if they end up living in my basement?” will try your patience and test your parenting skills. But questions that involve medical expenses, such as “What if they break their arm at the park or tear their ACL playing soccer?” or “What if they are diagnosed with a chronic condition, such as asthma or diabetes?” or “What if they need access to mental health services?” may also challenge you financially.

Even a simple virus can land your child in the hospital. Pediatric practices across the U.S. are reporting higher-than-usual rates of respiratory syncytial virus (RSV) among children this cold and flu season, with the rate of RSV-related hospitalizations also rising.

A trip to urgent care or the emergency room can be expensive, never mind an extended hospital stay. You don’t want your child to suffer, but you don’t want your short- or long-term financial health to suffer either.

A CFP® professional can help you evaluate your family’s health care needs and create a comprehensive financial plan that covers your medical expenses today, as well as your potential future costs.

Start With Insurance

The first step in planning for your family’s medical care is reviewing your health insurance to ensure you have sufficient coverage. Or, if you don’t yet have health insurance, finding the right plan for your family’s needs.

Most likely, you will face a range of choices. High-deductible plans may allow a health savings account (or HSA, the best deal in tax land, since your income is never taxed!). Lower-deductible plans have higher monthly costs and more restrictions on where and how you get medical care. Beyond these basic costs, check how much you’ll owe for urgent or emergency room care, as well as hospital inpatient and outpatient care.

If you have a child with a chronic condition, it’s also very important that you check your policy’s prescription drug coverage. One of my client’s children has Type 1 diabetes, the treatment for which requires regular insulin injections. Insulin is expensive, which meant this family needed to have top-tier health insurance. Pay attention to the length of prescriptions your policy covers, too. Some plans no longer cover 30-day prescriptions, in which case you’ll likely need to request 90-day prescriptions from your care provider.

Consider a Health Care-Designated Savings Account

Even the best insurance plans don’t cover everything. There are, for example, many health care providers who do not accept insurance for mental health services or medications. If your child requires this kind of support, you may need to be prepared to pay out of pocket, and the price tag can be high: Initial meetings with mental health counselors or psychiatrists can cost upwards of $1,000.

More extensive services involve greater investments. One of my clients had a child in a partial hospitalization program, the costs of which were covered by their insurance for only a few weeks. The subsequent in-home treatments and therapy the child required, while covered primarily by the county, involved a co-pay that was higher than anticipated.

Some of these expenses may be reimbursed by your insurance company, but that process is rarely simple or quick. Instead, you may want to consider establishing an HSA or a flexible spending account (FSA). Both can be used to cover out-of-pocket health care costs, including eligible mental health services, and they come with significant tax benefits.

And while we’re talking taxes, remember that for 2022, the IRS allows you to deduct all qualified unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. Keep your receipts and a log of what is not covered.

Build Out Your Budget (and Your Emergency Fund)

You may still have health care-related expenses that aren’t covered either by your health insurance, HSA or FSA. If your child requires specialized care at a distant facility, you may have travel expenses that aren’t covered. If you have more than one child, you may need to plan for additional child-care expenses, such as a last-minute babysitter who can watch one child while you take the other to the hospital, or who can handle school drop-offs and pickups while you’re at the doctor.

A CFP® professional can help you incorporate these expenses into your budget if you know about them in advance. Unexpected expenses can be covered by your emergency fund. This should be your three to six months’ worth of living expenses kept in cash or cash equivalents (which a CFP® professional can also help you build up).

Planning for the unexpected is always a challenge, but a CFP® professional can guide you through these decisions and help relieve at least some of the worry that comes with being a parent. To find a CFP® professional near you, visit LetsMakeAPlan.org.