For many millennials, starting a family is one of the most exciting milestones you'll hit. But along with the joy comes the responsibility of understanding how to manage the costs of pregnancy and childbirth. Most of your medical expenses will be covered by insurance but knowing what to expect and planning ahead can help you avoid surprises.
Here’s an educational guide on how insurance typically works for pregnancy, financial steps you should take, and what to expect along the way.
1. How Insurance Covers Pregnancy and Childbirth
Under the Affordable Care Act (ACA), maternity care is an essential health benefit, meaning most health insurance plans must cover pregnancy, labor, and delivery services. This includes routine prenatal care, hospitalization, and newborn care. While this is great news, it doesn’t mean all expenses are fully covered. You’ll still be responsible for things like your deductible, co-pays, and co-insurance until you hit your out-of-pocket maximum.
2. Key Insurance Terms to Know
Before diving into pregnancy costs, it’s essential to understand these basic terms:
Premium: The amount you pay monthly to maintain health insurance coverage.
Deductible: The amount you pay for healthcare services before your insurance kicks in. For example, if your deductible is $3,000, you’ll pay that first $3,000 before insurance starts paying.
Co-insurance: After you’ve met your deductible, co-insurance is the percentage of costs you’ll share with your insurance company (e.g., 20% for you, 80% for the insurer).
Out-of-Pocket Maximum: The most you’ll have to pay for covered medical services in a plan year. After hitting this number, your insurance will cover 100% of your remaining healthcare costs for the year.
3. Supplemental Insurance for Maternity Leave Gaps
While most employer health insurance plans cover the medical expenses related to pregnancy and childbirth, many couples face another financial challenge: lost income during maternity or paternity leave. If your employer doesn’t offer paid family leave, you might have to rely on unpaid leave through the Family and Medical Leave Act (FMLA), which can make it difficult to cover household expenses.
This is where supplemental insurance options, such as those offered by companies like AFLAC, come in. Supplemental insurance provides cash benefits that can help cover costs not paid by your primary health insurance, as well as replace lost income during your leave.
Here’s how supplemental insurance can help:
Maternity Leave Coverage: AFLAC and similar providers offer short-term disability policies that can pay a portion of your income (usually 50-70%) while you're recovering from childbirth. These benefits can help bridge the gap if your employer doesn’t offer paid leave or if your state doesn’t provide paid family leave.
Cash Benefits for Hospital Stays: Some policies pay out a flat cash amount for hospital stays related to childbirth, which you can use to cover deductibles, co-insurance, or even household bills like rent or groceries.
Complications and Extended Leave: If complications arise during pregnancy or delivery, a supplemental plan may provide additional benefits for extended hospital stays, surgery, or recovery time. This can be a financial lifesaver if you end up needing more time off than initially planned.
4. Paid Family Leave: Understanding Your Options
Many younger couples are dual-income households, so taking time off after a baby is born can be a financial concern. Depending on where you live and your employer’s policies, you might be eligible for:
Paid Family Leave (PFL): Offered in some states like California and New York, PFL provides a percentage of your income for a set period after birth.
Short-Term Disability Insurance: If your employer offers this, it can replace a portion of your salary during maternity leave.
Unpaid Leave: Under the Family and Medical Leave Act (FMLA), many workers are entitled to 12 weeks of unpaid leave, but not all employers offer paid maternity or paternity leave.
5. Emergency Savings for Unexpected Costs
While most pregnancies go smoothly, it’s important to prepare for the unexpected. Complications or extended hospital stays could increase your out-of-pocket costs. Having a buffer in your emergency fund can help cover these additional expenses. Additionally, if the baby is born prematurely or needs specialized care, your insurance will likely cover most costs, but it’s smart to check your plan’s details in advance.
6. Balancing Baby Expenses with Other Financial Goals
Many millennials are already juggling competing financial goals, such as saving for retirement, paying off student loans, or buying a home. With a baby on the way, you might wonder how to prioritize. Here are a few tips:
Continue contributing to retirement: Try not to stop investing, even if you reduce the amount temporarily.
Plan for baby-related costs: Create a new budget that factors in medical expenses, baby gear, and future childcare costs.
Focus on flexibility: Financial goals can be adjusted as your needs change, so be realistic but keep saving where you can.
7. Childcare Costs: A Major Expense After Birth
For most working couples, childcare is a major expense to consider. National averages for full-time daycare range from $800 to $2,000 per month, depending on your location. You can offset some of these costs using:
Dependent Care Flexible Spending Accounts (FSA): These allow you to contribute pre-tax dollars to cover childcare costs, saving you money on taxes.
8. Adding Your Baby to Your Health Insurance Plan
After the baby is born, you’ll need to add them to your health insurance plan within 30 days of birth. Check with your employer or insurance provider to ensure you complete this step on time. Adding a child may slightly increase your premiums, but it’s essential to ensure your baby is covered for doctor visits and emergencies.
9. Life Insurance and Estate Planning: Protecting Your Family
Having a child means it’s time to think about long-term financial security. Consider:
Life Insurance: A term life insurance policy can ensure your family is financially secure if something happens to you.
Estate Planning: Create a will or trust to designate guardianship for your child and ensure they are protected financially. Estate planning is not just for the ultra-wealthy.
10. HSAs and FSAs: Saving for Medical and Child-Related Expenses
If you have a high-deductible health plan (HDHP), you can open a Health Savings Account (HSA). An HSA allows you to save pre-tax dollars for medical expenses, including pregnancy costs. It rolls over year to year, making it a great way to save long-term.
Alternatively, if your employer offers a Flexible Spending Account (FSA), you can use it to pay for qualified medical expenses, including baby-related healthcare needs.
11. Tax Benefits for Parents
Once you have a child, you may be eligible for several tax benefits:
Child Tax Credit: You can claim up to $2,000 per child under age 17.
Dependent Care Credit: This credit can help offset some of your childcare costs.
These credits can reduce your taxable income, so it’s worth exploring how they can benefit you during tax season.
By understanding how insurance works, securing supplemental coverage, and taking advantage of tax benefits and savings accounts, you and your partner can enter this exciting chapter of your lives feeling more financially prepared. Planning ahead will not only help you manage the immediate costs of pregnancy and childbirth but also set your family up for long-term financial success.
Disclaimer: None of this should be seen as advice. This is all for informational purposes. Consult your legal, tax, and financial team before making any changes to your financial plan.