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How to Lower Your Medical Costs

3 min read

30 sec brief

Taking care of ourselves is an increasing financial burden. The Kaiser Family Foundation reports that in the 10 years through 2016, employees’ with health insurance coverage have seen their share of costs rise more than 50%  on average while wages have, on average, risen less than 30%.

Taking care of ourselves is an increasing financial burden. The Kaiser Family Foundation reports that in the 10 years through 2016, employees’ with health insurance coverage have seen their share of costs rise more than 50%  on average while wages have, on average, risen less than 30%.

Health Cost Tips

Some good news is that there are steps you can take to lower your out-of-pocket medical costs.

  • Consider Generics. Whenever you are given a prescription, make it a habit to ask the doctor if there is a generic version. If you have a chronic condition that requires medication, periodically ask if a new generic version has been released. Hundreds of new generic drugs are approved by the Federal Drug Administration every year. If your drug costs are still high, spend some time , or online services. There can be big price differences for the same meds, depending on where you buy it.
  • Ask For a Cash Discount. Even if your health insurance covers a procedure, such as an MRI, your share of the payment might be more than if you offer to pay the provider cash directly. Ask all providers what their cash discount rate is for a direct payment; it can often be much less than what the same provider will bill your insurer.
  • Check out a High-Deductible Health Plan (HDHP). Many employers offer an HDHP. You can also choose an HDHP if you purchase insurance through the ACA marketplace.

As the HDHP name implies, the deductible is often more than you are responsible for with other plans, but the payoff is that your share of the monthly premium will be lower. It’s worth applying some elbow grease to run the numbers. You can also save big-time if you pair your HDHP with a Health Savings Account (see the next tip.)

  • Pay Your Bills with Tax-Free HSA Dollars. Anyone with a HDHP is allowed to save money each year in an HSA. Three valuable HSA tax breaks effectively reduce your medical costs. The first tax break comes when you save money in an HSA. Your taxable income is reduced by the total amount of your annual contributions. While the money sits in your HSA there is no tax due, and any unused money can be rolled over into the next year—and for decades. There is no use-it-or-lose-it issue with HSAs. The third tax break comes when you use your HSA to pay medical bills. All money you withdraw from an HSA is tax free as long as it is used for a qualified out-of-pocket medical expense.

Let’s say you have a $2,000 medical bill and your federal tax rate is 24%. If you withdraw money from a traditional retirement account to pay the bill, you would need to take out around $2,600 to net $2,000 after paying income tax on the withdrawal. Use an HSA and you need to withdraw $2,000 to net $2,000.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

About the author

Carla Fried

Carla translates business and personal finance concepts into engaging content that helps individuals make more confident choices in how they manage their money. Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.

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