Healthcare costs budgeting guide: What you need to know

Summary:

• Healthcare costs are rising and often catch people off guard, so it helps to make them a clear part of your budget. 

• A good plan accounts for your monthly premium—the amount you pay for coverage—plus prescriptions, checkups and unexpected medical bills. 

• Looking at what you spent on healthcare last year, putting your health first and saving for emergencies can help you feel prepared.

• Health savings tools like health savings accounts (HSAs), health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs) can help cover costs over time.

Adults often feel the pressure to act responsibly with everything related to their well-being and their wallets, including budgeting for medical expenses. It’s easy to think that health insurance will cover most medical-related costs. Many assume healthcare expenses can be overlooked in their budget—a copay here, a deductible there. It can all be handled without too much fuss, right?

Not so fast. Medical expenses should be a top budgeting priority with out-of-pocket costs—medical expenses you pay for yourself—on the rise. Consider this: The Centers for Medicare & Medicaid Services (CMS) estimate that U.S. health spending reached $5.7 trillion in 2025, up 7.3% from 2024. 

Even if your health insurance covers an expense, your budget for healthcare costs still needs to include your premiums (the amount you pay for your health plan). And there’s the always-present risk that an unexpected medical expense could throw your spending plans off track. 

Wondering how to budget for healthcare costs? Fair question. This can sound like a lot. To help you get started, we’ve put together a simple healthcare costs budgeting guide.

An effective healthcare costs budgeting guide should start with budgeting for medical expenses. It may be helpful for you to group your healthcare costs into three categories:

• Fixed premium: This is the set amount you pay for your health insurance. If you get health insurance through work, this expense may be deducted automatically from your paycheck.

• Routine: These are your expected healthcare costs, even if they change. They might include the copay— your share of the cost at a doctor’s visit or of a regular prescription.

• Unexpected: These costs can be difficult to predict, like an unplanned trip to the emergency room or an urgent medical procedure.

When it comes to planning for healthcare costs, your medical and spending history is key. “The best place to start in determining how much to budget for healthcare costs is to look at how much you actually spent on healthcare previously,” suggests CPA and personal finance blogger Logan Allec.

Start by reviewing receipts from your insurance company and healthcare providers. Then go through your bank and credit card statements to find any healthcare costs you paid out of pocket over the past year, Allec says. (If you didn’t save all of last year’s receipts, don’t stress. You can contact your insurance and healthcare providers for them.) The final number you come up with is a good start to estimate your annual fixed and routine healthcare expenses.

When budgeting for healthcare costs, Allec also says to think about if you’ll have any extra costs this year that you didn’t have last year. For example, are you scheduling a surgical procedure or expecting a child? Make sure you understand how much you’ll have to pay out of pocket. Closely review exactly what your insurance covers each year. Then add that into your plan for healthcare costs.

The next step in our healthcare costs budgeting guide is to estimate your annual healthcare costs. Consider how you rank them against your other important expenses, says Todd Christensen, blogger and financial educator.

Healthcare expenses should fall between basics like your mortgage or rent, taxes, food, transportation and phone, he says. “If you have a hard time paying for prescriptions but make monthly payments to your cell phone provider, then you have prioritized your personal communications over your health.”

From budgeting for your insurance premiums to preparing for doctor visits and ordering prescriptions, think of paying for healthcare expenses as a “need” instead of a “want,” Christensen says. Adjusting your mindset to give your health the importance it deserves helps budgeting for medical expenses become a habit.

Remember those unexpected healthcare costs that are tricky to plan for? When creating a budget for healthcare costs, Christensen suggests creating an emergency fund. An emergency fund is an account that is set aside to help cover an unexpected financial emergency, such as a procedure or medication that’s not fully covered by your insurance plan.

Experts typically recommend saving at least three to six months of living expenses in your emergency fund. This is to help pay for unexpected expenses without having to take on debt or dip into savings marked for other financial goals. But, according to Christensen, if you’re just starting an emergency fund, it’s best to start small and focus on a realistic goal.

“Initially, the amount is less important than the commitment to just do it,” he says. Managing the account, however, does require some willpower. For example, going on a 10-day wellness retreat, however helpful the massage sessions may seem, probably doesn’t qualify as an “emergency.”

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In addition to your emergency fund, there are also special health savings accounts—paid for by you or your employer—that can help you cover your health expenses and plan for healthcare costs. 

Most healthcare costs budgeting guides typically highlight three common health savings tools to consider:

• A health savings account (HSA) can be for you if you’re enrolled in a high-deductible health insurance plan (HDHP). This is a plan that offers lower premiums in exchange for a higher deductible (the amount you pay before insurance kicks in). An HSA lets you set aside money for eligible healthcare expenses, including certain dental work, eyeglasses and prescriptions, before taxes are taken out of your paycheck. This means you keep more of what you earn. Contributions can come from you, your employer, a relative—anyone who wants to fund the account. Also, the funds roll over from year to year with an HSA, which makes it a great long-term tool for budgeting for medical expenses. Keep in mind that there’s a limit for how much you can put into the account each year.

• While an HSA can be funded by you and your employer, a health reimbursement arrangement or a health reimbursement account (HRA) is funded only by your employer. You can use the funds for approved medical expenses, and any money you don’t spend rolls over to the next year. If you leave the company, however, you can’t take the funds with you.

• With a flexible spending account (FSA), you can have a certain amount of money taken from your paycheck before taxes and put into an account for approved healthcare expenses. Both you and your employer may contribute to this plan with a maximum contribution allowed by law. Unlike an HSA or HRA, FSAs generally don’t roll over at the end of each year. Check with your employer for your plan’s specifics.

To budget for healthcare costs, smart shopping journalist Trae Bodge suggests you take the time to find the best health insurance plan for you and your family. Carefully consider the type of plan (are your preferred doctors, hospitals and pharmacies covered?) as well as the cost of premiums, deductibles, copays and prescriptions. Your health history may also be an important factor when considering different coverage options.

“If family members go to the doctor frequently or have multiple prescriptions, it may be better for your budget to opt for a more expensive plan, given the coverage provided,” Bodge says.

If you’re self-employed, you can shop online for health insurance plans. You should also look at different plans directly through insurance providers to better budget for healthcare costs, Bodge says. You might be able to save by choosing a smaller insurance company over a larger one or by signing up directly with the provider, she adds.

When it comes to budgeting for medical expenses, a little planning today can go a long way toward a more financially secure tomorrow. With a healthcare budget firmly in place, you’ll be better able to make decisions that are good for your health—and your wallet. 

Some basic tips to keep in mind from our healthcare costs budgeting guide: 

• Healthcare costs are a regular part of life. Planning ahead can help you avoid financial stress when medical needs come up. 

• Understanding how your healthcare plan works in real-life situations can help prevent costly surprises.

• The right mix of savings habits and accounts can give you more control over your medical spending over time.

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