Here are six ways to get fit and save on healthcare in the New Year:
1. Use a Health Savings Account (HSA)
Surveys continue to show that too few Americans take advantage of health savings accounts, or “HSAs.” Either they just don’t know that they exist or they underestimate how much they save on healthcare. You’re eligible to contribute to an HSA when you’re covered by a high deductible health plan. High deductible plans are becoming more popular because they’re more affordable. The higher your deductible, the lower your premium will be. The beauty of an HSA is that as long as you spend it on qualified medial expenses, the funds are never taxed. Contributions to an HSA, other than those from an employer, are deductible on your tax return, no matter if you itemize deductions or not. That means that if your average income tax rate is 25%, you get an immediate 25% discount on all your out-of-pocket medical expenses. That’s huge! You can take distributions from the account to pay for medical expenses—such as doctor co-pays, prescriptions, and supplies—before your deductible is satisfied and your health benefits kick in. But if you spend money in an HSA on non-qualified expenses, the amount you withdraw will be subject to income tax, plus a 20% penalty. You can also use HSA funds for a long list of other types of expenses, even if you don’t have insurance for them, such as going to a dentist, ophthalmologist, chiropractor, or psychologist. One of my favorite ways to use HSA money is to get new pair of prescription sunglasses every couple of years. Another benefit of an HSA is that you don’t have to take any distributions each year; you can let the savings accumulate indefinitely without penalty. Find out if your health insurance qualifies as a high deductible plan. If so, open up an HSA and begin funding it as soon as possible so you can get a tax break on your next medical expense. For 2017, you can contribute up to $3,400 if you have individual coverage or $6,650 for a family plan.
2. Use a Health Flexible Savings Arrangement (FSA)
Flexible spending arrangements have some similarities to HSAs, but are only offered by employers. An FSA allows you or your employer to make contributions on a pre-tax basis, usually through payroll deductions. For 2017, eligible employees can contribute up to $2,600. As long as you spend FSA funds on qualified medical expenses, they’re never taxed. So, just like with an HSA, you save an amount equal to the income taxes you would have paid on the money. But unlike an HSA, an FSA is a “use-it-or-lose-it” plan. That means you generally must empty the account every year or else only carry over a small amount, while funds in an HSA can roll over from year to year without penalty.
3. Get Healthcare Subsidies
The Affordable Care Act, also known as Obamacare, mandates every American to have health insurance. Even if Obamacare is eventually repealed, you’re required to have it until changes are officially made. If you can afford heath insurance but choose not to buy it, you’ll be subject to a tax penalty. Depending on your income, the state where you live, and the number of people in your household, you may be eligible for financial assistance to save on healthcare. In most states, if you earn less than 400% of the Federal Poverty Level, you can get a healthcare subsidy, which reduces your monthly health insurance premium. The open enrollment period to get health insurance for 2017 began on November 1, 2016 and ends January 31, 2017. So if you remain uninsured, don’t miss the opportunity to get the coverage you need to protect your health and your finances. Use the Obamacare Subsidy Calculator to estimate your monthly health insurance costs.
4. Max Out Your Health Insurance Benefits
Health insurance benefits, such as free preventative checkups and deductibles, are tied to an annual schedule. That means you need to pay attention to the calendar in order to max out your benefits. For instance, if you burn through your health deductible and need a medical procedure, make sure to get it before the end of the year. If you wait until the following year, you could end up paying more than you have to. In other words, take advantage of the time each year after you reach your deductible so you can get your insurance company to pay for as much of your medical expenses as possible. If there are capped benefits, like a certain number of therapy sessions or an allowable amount of dental work, get part completed in December and the rest in January, in order to take advantage of 2 years’ worth of benefits. And don’t skimp on the free preventative appointments, like annual physicals, well-woman visits, mammograms, prostate screenings, dental cleanings, and eye exams.
5. Claim Medical Tax Deductions
The IRS allows you to save money by claiming medical expenses as deductions on your tax return. However, the catch is that you must itemize deductions, instead of taking the standard deduction for your tax filing status. When you itemize, you can claim medical expenses paid for yourself, your spouse, and dependents, unless they’re already excluded from your taxable income, paid for using your HSA or FSA, or were reimbursed to you. In other words, you can’t double dip and get a tax deduction twice. Another important point with medical deductions is that you can only claim amounts that exceed 10% of your adjusted gross income. For example, let’s say your AGI is $50,000 and your medical expenses for the tax year are $6,000. You could deduct the amount over $5,000, or $1,000. If your medical expenses are less than 10% of your income, then you can’t deduct any of them. There’s a long list of expenses that qualify for a tax deduction, and some of them, such as acupuncture, weight-loss programs, and transportation, may surprise you. You can even claim the cost of your health insurance premiums if you pay them as an individual—but not if they’re paid on a pre-tax basis from your paycheck at work. I encourage your to take a look at the full list of deductible costs found on IRS Publication 502, Medical and Dental Expenses. There are probably many medical expenses that you might not realize are deductible.
6. Review Your Medical Bills Carefully
My last tip to save money on healthcare and fitness is to review your medical bills carefully. If you don’t understand a charge, don’t pay it until the medical provider and your insurance company can explain why you owe it. If you believe that a health insurance claim has been denied in error, perhaps because of an administrative or coding error, fight for your rights and file an appeal if necessary. Laura Adams is a personal finance expert, award-winning author, and host of the top-rated Money Girl Podcast. To learn more and connect, click here. Featured photo credit: Little Perfect Stock via shutterstock.com
