Healthcare expenses can be quite high, with deductibles of several thousand dollars and out-of-pocket maximums over ten thousand dollars. Luckily, the IRS allows people to sometimes lower the actual cost of healthcare expenses by paying for them pre-tax.
Using Healthcare Flexible Spending Account (HCFSA) to Lower Healthcare Costs
Some employers grant access to a Healthcare Flexible Spending Account (HCFSA, sometimes called FSA), where money is taken out of the employee’s paycheck pre-tax. Then, as the healthcare expenses are incurred, the employee submits the receipts to the HCFSA program, which then reimburses the expenses from the pre-tax allotment. Some HCFSA programs also supply a debit card which can be used to pay for eligible expenses.
One of the biggest issues with HCFSAs is that the money allocated for them is “use-it or lose it”, meaning that only expenses incurred during the calendar year can be reimbursed from the HCFSAs. Any money left in HCFSA cannot be used in the following calendar year. While some companies allow carrying over up to $500, you’ll need to check your companies exact policy to determine what amount, if any, can be carried over to the following year.
For example, Joe allocated $2,000 for his HCFSA. Over the course of the year, Joe incurred $1,000 of medical expenses. Joe’s company’s HCFSA does not allow carrying over any funds in his HCFSA, so Joe loses the remaining $1,000 in the HCFSA.
Using a Health Savings Account to Lower Healthcare costs
Another option available is called a Health Savings Account (HSA). If someone has an insurance policy classified as a High-Deductible Health Plan (HDHP), they are allowed to open and fund an HSA. An HSA can be funded with pre-tax dollars, and unlike an FSA account, the balance is not forfeited at the end of the year. Any money left in the HSA at age 65 can be withdrawn without penalty, similar to a traditional 401(k).
Other Tips to Lower Healthcare Cost
- Ask About Generics
- Ask for a Discount
- Listen to Your Doc
- Shop Around
- Compare Costs for Lab Tests
- Try Mail-Order Medications
- Read Your Bills
- Consider a High-Deductible Plan
- Use a Flexible Spending Account
- Take a Walk
Preparing for Medical Treatment
There are many stories of people being shocked with a bill for thousands of dollars. Below are the steps you can take to avoid owing (potentially) thousands of dollars.
- Choose an in-network practitioner. Verify that they’re in-network by calling your insurance company or checking your insurance company’s online directory. Many people have been told by a secretary that the practice is in-network and then learned otherwise. If you go out-of-network, you’ll likely have to pay the full charge for the service and will likely need to submit the bill to the insurance company yourself for reimbursement.
- If a referral or preauthorization is needed, make sure the paperwork is squared away. You may receive an EOB for the upcoming procedures. If you don’t receive an EOB, call your insurance company to verify that all necessary paperwork went through.
- After each visit, you should receive an explanation of benefits (EOB) with an itemized list of what the doctor billed for. If there is an unexpected or fraudulent item, contact the doctor’s office to clarify why that line is included on your bill. Health providers are required to provide an itemized bill. If the charge is fraudulent, contact your insurance company.
- If you go to an out-of-network practice, keep a copy of the statement from the doctor’s office, in case you need to submit the claim to your insurance company yourself. Even if the secretary says they’ll submit the claim to your insurance for you, they may not – and you’ll be the one who has to foot the bill.
- Once you determine how much is owed from a medical visit, submit the expense to your HCFSA for reimbursement.