How To Keep Healthcare Costs From Setting You Back
9/14/2026
Whether it’s paying down debt, setting money aside for a home or saving for retirement, many people spend a great deal of time thinking about how to make progress toward their life goals. But just as much as preparing for the future, building a strong wealth plan is about protecting yourself from the unexpected now. And one of the largest – and most underestimated – financial risks is unforeseen medical expenses.
It takes just a few seconds to take a bad fall during a pickup basketball game, tear your ACL and undo years of financial progress. Suddenly, the money that was earmarked for a kitchen renovation needs to cover the medical bills instead. That’s why healthcare decisions – from choosing the right insurance plan to building dedicated savings for medical expenses – deserve thoughtful, proactive planning.
Quick Answers to Healthcare Questions
Breaking Down the Tradeoffs Within Health Insurance Plans
Nearly every healthcare plan asks you to make a tradeoff. Plans with lower monthly premiums often require you to take on more of the financial risk through higher deductibles. Plans with higher premiums generally reduce that exposure, but at the cost of paying more each month. Neither choice is inherently right or wrong, but the key is understanding which tradeoff you’re making and whether it fits your financial situation.
Choosing a healthcare plan shouldn’t be viewed solely through the lens of monthly expenses. The real question is how much financial exposure you’re taking on if a medical event occurs. And while monthly premiums and deductibles are part of that, another essential piece of the puzzle is your maximum out-of-pocket amount (MOOP). This is the most you’ll have to pay for covered health expenses in a given year before your insurance covers the remainder. So, if your MOOP is $5,000 and your bill is $10,000, your responsibility would generally be capped at $5,000. Because of this, if you choose a health plan with a $120 monthly premium, it’s not just that $120 you should consider whether you can afford – it’s the MOOP. If your MOOP is $7,000 and paying that amount would force you to take on debt, it may be a sign you’re taking on too much financial risk.
With so many competing financial priorities, it’s natural to focus on lowering your monthly expenses. But with health insurance, the cheapest option now doesn’t always end up being the least expensive one over time.
Building Up Your Healthcare Reserve
Once you understand your financial exposure, it’s much easier to create a plan for how you’ll cover those healthcare costs if they arise. Every dollar you set aside for healthcare is one less dollar you’ll have to pull from an emergency fund, retirement savings or other financial goals if a medical expense occurs. And while having an emergency fund is still imperative, there are other strategies you can use to make your reserve even stronger.
One of those is a Health Savings Account (HSA) – a vehicle designed to help those enrolled in a high-deductible health plan put away money for medical expenses. Arguably, the most appealing trait of HSAs are that they offer a triple tax benefit: You make tax-deductible contributions, enjoy tax-deferred growth and ultimately make tax-free withdrawals. Plus, many HSAs allow you to invest your balance, giving your healthcare reserve the potential to grow over time.
Another thing to keep in mind about HSAs is that they can serve as long-term investment funds. If you contribute the maximum amount every year ($4,400 for those with individual coverage in 2026) and let it grow at a 6% rate of return for 20 years, you’d end up with nearly $170,000. That reserve can help cover future healthcare costs without forcing you to drain other savings. And because HSA funds can be used for medical expenses at any point in the future, you can also view them as a supplement to retirement savings.
If you aren’t eligible to contribute to an HSA, a Flexible Spending Account (FSA) can provide many of the same tax advantages for current-year healthcare expenses. However, FSAs have a few key differences:
- FSAs generally follow a “use it or lose it” rule, so any money in the account must generally be used by the end of the year
- You must decide next year’s contribution amount (up to $3,400 in 2026) during this year’s open enrollment, and that amount typically can’t be changed
- FSAs can only be established by an employer
Because of these differences, FSAs are often best used for medical expenses that you anticipate. For example, if you know you’re getting your wisdom teeth removed in the coming year, an FSA can help you cover that expense with pretax dollars. While they aren’t designed to build a long-term healthcare reserve like an HSA, they can still help keep your medical expenses from competing with other financial priorities.
Staying On Top of Healthcare Costs
Protecting your financial goals from unexpected healthcare expenses doesn’t end once you’ve chosen a health plan or even built up your reserves. Small decisions throughout the year can also make a meaningful difference, like taking a closer look at your medical bills. Contrary to what you might expect, the grand total on your bill isn’t always the amount you’ll have to pay. It’s good practice to always ask for an itemized bill, because billing errors can happen. Along with that, consider negotiating a discount after your insurance has processed the claim. If you do end up with a larger bill and need to take on some medical debt, you can also ask about interest-free payment plans or financial assistance options.
Another habit worth building is conducting an annual benefits review. Every year during open enrollment, take a fresh look at your healthcare plan and decide whether it still fits your financial situation, expected healthcare needs and longer-term goals. If you’ve built up a hefty HSA, you may be more comfortable taking on a higher MOOP in exchange for a lower monthly premium. If you have questions about your benefits, reach out to your company’s Human Resources representative – and our team can help you understand how those benefits fit into your broader wealth plan.
Healthcare costs can affect far more than your budget today. By accounting for them in your broader wealth plan, you can better protect the savings you’ve built and keep your long-term goals on track. Our team can help you build healthcare costs into your plan so you can move forward with greater confidence.
This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
