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Budgeting for high out-of-pocket health care costs

Managing health care costs is something that’s routine for many people—until a major illness or injury brings in big medical bills. Even with good health insurance coverage, major increases in out-of-pocket health care costs can challenge your budget, so it’s important to understand all your options. 
Sometimes, your insurance might not cover everything—even things you thought they’d cover. When an insurance company processes a claim, they mail you an explanation of benefits (EOB). If they deny a claim, they’ll mail you an explanation of the denial. You can also call your insurance company and ask for more information. Understanding your rights can help you navigate the health insurance claims process. 

Appealing a denied health insurance claim

You do have the right to appeal any denial of medical claims. The Summary of Benefits and Coverage from your insurance company or job-based health plan should explain your appeal rights. Legally, you have the right to a review of your claim by the insurance company, and you also have the right to a third-party review of the claim. 
You’ll usually start an appeal of the denial by sending a letter to your insurance company. Be sure to outline why you believe the denial was in error and provide any supporting evidence or data. Keep diligent records, receipts, and all correspondence related to your treatment, claim, and denial. Take notes during phone calls to help remember key talking points, who you’ve spoken with, and what’s been done. Pay attention to your plan’s timeframes for when you need to file claims and appeals. 

If you don’t have medical insurance—or if some costs aren’t covered by insurance

If you’re not covered, you may be able to negotiate the costs you pay out of pocket. However, finding the right person at the hospital or doctor’s office to talk to may take some extra time and persistence. 
Some factors work in your favor—insurance companies pay a negotiated price for nearly everything. You may be able to find information about the price of the procedure or test online. Doing some research on a fair and reasonable price could help your case when you call to negotiate. 
Providing proof of your limited ability to pay could also help lower the cost if you’ve already had the procedure, in an emergency for example, or if you saw an out-of-network doctor at an in-network hospital. 

Tips for managing prescription costs

It’s helpful to know prescription costs can vary based on the pharmacy you use. There’re smartphone apps and websites available to help you search pharmacies for the lowest price on your medication—some even include coupons for your specific medication. 
Pharmacy membership clubs can also help you save money. Ask your local pharmacy or search online to compare pharmacy savings club options. However, it’s important to note there’s usually a fee for a membership club. You’ll want to make sure the discount on the prescription offsets the monthly or yearly membership fee.  

Tips to manage costs when traveling for treatments or tests

Few people live close to a hospital with all the treatments and tests needed. Traveling and finding a place to stay is likely necessary. Check with patient services at the hospital or treatment center where you're traveling for transportation and lodging options. 
Search for hospital hospitality houses near your destination. These offer low-cost—or even free—lodging and some meals for individuals and families getting health care away from home. 
Also, friends and family may be able to buy tickets with their miles or points for you and some charities accept donated miles to help patients travel for treatment. 

Budgeting after a major illness or injury

When you have less income than you did previously—or more bills—it isn’t always easy to manage. Start with an in-depth look at your budget to understand how much you’re spending and where you’re spending. 
The basics of budgeting 
First, figure out your average monthly expenses to know how much money is coming in versus going out. If you use credit cards, go online and look at year-end summaries to see where you spent the most money last year. Make note of any surprise categories of spending. Do the same with online bank statements. 
Next, identify your ongoing monthly bills, like subscriptions or landscaping, and decide if you need to continue all these services. Read Tips on how to spend less money for additional suggestions. 
Then, look through your past bills to identify expenses that you may not be paying now—for instance, you may not have commuting costs if you’re not working. Last, categorize expenses into “essential” and “discretionary.” 
Cover essential expenses 
Some expenses simply aren’t optional—you need to eat, and you need a place to live. Essential expenses include:  
  • Housing. Include your mortgage, rent, property tax, utilities (electricity, water, gas, etc.), homeowners or renters insurance, and condo or home association fees. 
  • Food. Budget for groceries only. Don’t include takeout or restaurant meals, unless you really consider them essential, for example, if you’re unable to cook. 
  • Health care. Account for health insurance premiums, unless you make them through payroll deduction, and out-of-pocket expenses like prescriptions and copayments. 
  • Transportation. Try to get the full picture, including car loan or lease payment, gas, car insurance, parking, tolls, maintenance, and commuter fares. 
  • Child care. Include all day care costs, tuition, and fees. 
  • Debt payments and other obligations. Focus on essential expenses like credit card payments, student loan payments, child support, alimony, and life insurance. 
If possible, try to rebuild your savings 
Once you’ve accounted for your necessities, you can begin budgeting for extra payments on debt and rebuilding savings. Little may be left over for fun if your income has dropped drastically. However, rebuilding your emergency savings may be worth the effort. 

Emergency sources of money for major medical bills

For some people, reducing discretionary expenses could be all that’s required to recover financially from a serious illness or injury. For others, sustaining quality of life may require significantly downsizing—it depends on your age, level of savings, and your income prospects in the future. If you’re married, the equation changes to include your spouse and their income and savings. 
In some cases, borrowing to cover your essential expenses could mean borrowing against your home—taking out a home equity line of credit, a second mortgage, or refinancing to take cash from your home equity. In other cases, getting a loan from friends and family could help. If you have a workplace savings account and can keep working, taking a loan or a hardship withdrawal may also be an option. 
If you have a financial need, your retirement plan may offer loan and withdrawal options. If you have a workplace savings plan with Fidelity and want to learn about your options, log in to NetBenefits® to see your options. 
For some people, the combination of lost income and medical bills could mean that declaring bankruptcy is the best choice for their future. Workplace savings accounts like 401(k)s are usually protected from creditors. Rollover IRAs are as well. Traditional IRAs and Roth IRAs are protected up to a limit: $1,512,350.1 It’s not an easy decision, but it may be the only option in some cases. Be sure to speak with a lawyer before making any decisions. 

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More to explore

1. Cara O’Neill, “Can You Keep Your Retirement Accounts in Bankruptcy?” TheBankruptcySite, April 20, 2022,

This information is general in nature and provided for educational purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.