Affording health care costs: Part 3
Is a Health Savings Account right for you?
The good news is there are ways to manage your health care costs to save money. This article will focus on Health Savings Accounts for your health care out-of-pocket costs. Also, look for related articles on reasons to have health insurance (Part 1) and Health Flexible Spending Accounts (Part 2).
Setting money aside to manage health care expenses helps reduce your need to use credit to pay medical bills and reduces your concerns that you can cover a bill, according to the University of Maryland Extension. You can save money in your emergency fund. You might qualify for a Health Savings Account (HSA).
Health Savings Accounts (HSAs) are medical savings accounts available if you have a HSA-qualified, high-deductible health insurance plan. Ask your benefits office or insurance provider if your plan meets these criteria. If yes, you can open the account to save pre-tax dollars for qualified medical expenses. You set up the account with a trustee, which can be a bank, an insurance company or any organization approved by the IRS to be an HSA trustee. You can comparison shop to choose an institution. Consider the fees, interest rate and convenience for deposits and withdrawals. Your money can be invested to earn interest, so manage these funds like you do your IRA or retirement savings accounts.
By using pre-tax dollars, you set aside money before taxes are taken out each pay period. Thus, you reduce your income tax bill and keep more money in your pocket. When you incur qualified medical expenses—copayments, coinsurance, prescriptions and other allowed costs as defined by IRS code--you can pay using the funds you have set aside.
You and/or your employer can contribute to an HSA, but you are the account owner. You can build up savings to help pay for future health care costs and earn interest on your contributions, within IRS limits. If you do not spend some HSA money, you can carry it over year to year.
How do you figure out how much to contribute? A good place to start is to calculate your out-of-pocket expenses for the past year. You can get this information from receipts, looking at your explanation of benefits, or obtaining a print out from your doctors’ offices and pharmacy for all visits and prescription purchases. Use the worksheet online health care cost calculator.
Other articles in this series: