How to Manage the High Cost of Having a Baby
By Brian O'Connell
Michael Motylinski, an ordained minister at Blue Sky Ceremony in the U.S. Virgin Islands, had a problem. He and his wife were expecting a baby and facing delivery costs of up to $10,000 by staying put.
The father-to-be did some digging and found a way to cut costs on the family’s baby delivery, and wound up saving almost 40 percent in costs.
“We chose to have our child in Puerto Rico,” he tells NetQuote. “The costs are significantly less, in the neighborhood of about $5,000, and we stayed there for a month by renting a condo through Airbnb, which cost us $1,800.”
“Basically, we get to enjoy the beauty of Puerto Rico, got excellent care and saved money in the process.”
Would Motylinski do it again? You bet. “We have another baby due this December and will be repeating the process,” he says.
Like most families in newborn baby mode, the Motylinksis balked at the high cost of a delivery.
Depending on the state where you live, and the type of birth delivery, costs can really bite into the family budget. For example, for a delivery with no complications versus major complications, childbirth costs can be as low as $2,277 (for basic delivery) and as high as $23,923 (for hospital cesarean), according to data from the U.S. Agency for Healthcare Research and Quality and American Association of Birth Centers.
Toss a decent heath insurance plan into the mix, and the cost is mitigated, but still high.
Case in point. A family residing in Montgomery County, Maryland, on a silver-level Affordable Care Act health plan, would pay $6,700 for a basic vaginal delivery, and about $8,200 for a C-section. That does not count health care insurance premiums, which would add another $5,000 on an annual basis, into the mix.
Baby delivery costs and what you'll have to pay
So how does the cost of a baby delivery really break down for the average American family?
In a word, it’s all about shared expense – i.e., coverage from your insurer and a good amount of out-of-pocket costs – probably more than you think.
“Since health insurance programs pay the majority of the 'allowed charges' for a normal labor and delivery, couples find that out-of-pocket costs come from cost sharing, out-of-network charges and uncovered expenses,” notes Kevin Haney, owner of A.S.K. Benefit Solutions, a New York City-based health insurance agency.
Haney breaks down baby delivery costs, from an insurance perspective, as follows:
Cost Sharing – Health insurance cost sharing is the obvious pain point for many couples, he says. “Large plan deductibles and co-insurance can leave parents with leftover expenses. Couples who have children will always hit their deductibles, and often hit their plans annual maximum out-of- pocket expense limit.”
Out-of-Network – Average delivery costs are very deceiving, Haney adds. “Not every woman experiences a normal pregnancy, labor and delivery,” he says. “Twenty-five percent of women experience complications during pregnancy. Twelve percent of babies deliver pre-term and require NICU confinement. Costs skyrocket in these situations.”
Use in-network providers to save on routine births
Patients typically use in-network providers for routine conditions, Haney explains.
“They seek out-of-network specialists when conditions become life and death – and figure out how to pay for it afterward. Additionally, financial exposure climbs sharply when patients use out-of-network providers, which are are responsible for 100 percent of the difference between the 'provider charge' (retail price) and the 'allowed charge' (insurance negotiated wholesale price)."
Also, don’t count on paid maternity leave to replace workplace income when parents take time off to care for a newborn baby.
“Health insurance does not replace income,” Haney says. “Most employers don’t provide paid maternity leave. Only five states have mandatory temporary disability programs (California, Hawaii, New Jersey, New York and Rhode Island).”
In fact, women may lose their job during maternity leave, and maternity leave through the Family Medical Leave Act ends after 12 weeks and covers less than 50 percent of workers.
“Consequently, lost income combined with a sharp increase in medical expenses often proves disastrous,” Haney adds.
Insurance coverage when having a baby
For couples looking for insurance help in covering a child delivery cost, Haney says there are a few items they’ll need to check off on their “to do” list.
“People planning to overutilize health care usually fare better by paying a higher premium for a plan that covers a higher percentage of expenses, and has a broader network of providers,” Haney says. “They should make certain that the hospital and NICU where their OB/GYN has admitting privileges participates in-network in the plan they choose.”
Parents-to-be can also use a flexible spending account to direct before-tax dollars towards predictable expenses for a normal delivery.
“They realize first dollar savings when they do so,” Haney says. “You can deduct the same expenses using IRS Schedule A, but only realize savings when the expenses exceed 10 percent of adjusted gross income.”
Also, parents should watch out for annual insurance costs for the entire nine-month pregnancy, which can spill over into the next year, and add to the total bill.
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Tony Liddle, a financial adviser in Wisconsin with two young children, knows first-hand how expensive births can be.
The situation that Liddle faced was a $5,000 per-person deductible on his family’s insurance.
“So, in my mind as a financial adviser, we needed to set aside $5,000 to pay for the delivery,” he explains
The problem was that the nine months of pregnancy was split between two years.
"Instead of paying a $5,000 deductible, we ended up paying $4,500 for the first half of the pregnancy (which included the ultra sounds and a trip to the emergency room for a false alarm), and then $5,000 for the second half which was the actual delivery.
“Consequently, my new rule to clients is plan ahead and get a low deductible in place for when you are starting a family.”
Good advice, indeed, for families experiencing the miracle of birth, while dealing with the harsh reality of delivery costs.