In previous articles we have discussed the devastating impact uncovered medical expenses can have on your financial health. The news outlets, magazines and TV shows are filled with stories of people who have been completely bankrupted by medical bills that they cannot afford to pay. Unaffordable medical procedures not covered by insurance are postponed, significantly impacting quality of life. Prescription drugs are skipped because one cannot pay the pharmacy. The difficulty of the situation is clear to all.
Even if you do all that you can to stay healthy through diet, exercise, regular checkups, etc., you may still find yourself with an unexpected trip to the emergency room. If you have kids, you are almost guaranteed to find yourself there. Uncovered medical expenses can break the bank and leave you gasping for financial serenity. What can we do protect ourselves?
Save Money for Medical Emergencies
Special savings accounts for medical emergencies is one of the best ways to protect yourself from financial devastation due to a medical emergency or uncovered medical expenses. One way to do this is through a Health Savings Account.
A Health Savings Account (HSA) is a tax-deductible savings account specifically for the payment of uncovered medical expenses. It was initiated in 2003 and is meant to be an adjunct to your health insurance, to cover those unexpected medical bills. It has three great benefits, if you can handle the requirements. (1) Your contributions are tax-free. (2) Any money you withdraw for qualified medical expenses is tax free. And, (3) if you do not need to withdraw funds, your HSA continues to grow, and the gains are not taxed. As of the current calendar year, you can make an annual contribution of up to $3,400 into your HSA or if you are a family, you can invest as much as $6,750. Seniors over the age of 55 may contribute an additional $1,000. According to a recent Forbes article, 2018 contributions will increase slightly: $3,450 for a single and $6,900 for a family.
A Flexible Spending Account (FSA) is a second option. FSAs are similar to the HSA, but there are significant differences. A FSA covers a larger menu of medical expenses than a HSA. Whereas a HSA requires you to enroll in a high-deductible insurance plan, FSA has no such requirement. This makes the FSA a more flexible health savings account and perhaps a more affordable option for those who do not have the ability to absorb higher deductibles. However, unlike the HSA, all the money you have invested in your FSA, if you do not use it, you lose it. It does not roll over.
How to decide if HSA is the Way to Go
- What is your long term goal? If you want to save for the medical emergencies and uncovered medical expenses of the future, the HSA is an attractive option. As long as you stay healthy and are able to avoid those emergency room visits or emergency procedures, a HSA is the best way to prepare for that catastrophic medical bill that might be in your future. The health savings account that you build now will be there for you in retirement when health care expenses blossom. If you are looking for long-term growth in your health savings account, HSA, even with its requirements, is a better platform.
- Can you afford the high-deductible insurance plan? Using a HSA means that you must have the ability to afford the higher-out-of-pocket expenses you will incur. In the current year, 2017, your health plan must have a deductible of $1,300 if you are single or $2,600 for a family. You must have the cash flow and ability to set aside funds for this purpose. If this matches you, then over the long-term the HSA is extremely worthwhile.
- What about your employer? Will your employer make a matching contribution to your HSA? It will make a significant difference to your health savings account bottom line if your employer will also make a contribution. Considering the fact that the federal government seems to be pushing more in the direction of the HSA, chances are your employer will jump on board too.
- Look out for fees. If you decide to open a HSA be sure to carefully read the small print. Some HSAs charge fees and others do not. Research your options and find a HSA that charges a very low fee or none at all.
Remain Proactive With Your Medical Bills
As we have discussed in previous posts, your medical bill must be treated as a priority. Carefully examine all documents you receive from your carrier, doctor or hospital. Check for errors and do not be afraid to challenge charges that you believe are inappropriate. Nothing is set in stone—bargain for better prices. And do not forget, you can apply online for a medical peer-to-peer loan to help you afford those procedures and therapies not covered by your insurance plan. The combination of taking a proactive stance and using a medical savings account will go a long way toward protecting you from the trauma of uncovered medical expenses, robbing you of your financial peace of mind.