How to save on health care expenses
Back in the ’80s, the first piece that I wrote for syndicated personal finance writer Sylvia Porter was about the growth of a relatively new type of insurance plan, the HMO, or Health Maintenance Organization. At the time, the HMO was considered an innovative way to curb health care costs.
Clearly, that didn’t pan out. More than 30 years later, those costs continue to soar—with the average American household spending $5,193 on health care in 2019, including insurance premiums, out-of-pocket costs, drugs, medical services, and supplies. (Note that figure includes the almost 40% of Americans on government programs such as Medicare and the recently expanded Medicaid. Families with market-based insurance policies pay much more.) As is often pointed out, we pay more for health care than people in any other country, and the expense weighs especially heavily because these costs have grown much faster than American workers’ overall income gains.
And this is without even factoring in the ongoing pandemic, which is imperiling Americans’ health as well as their finances. Still, there are ways to save money in our current system. Here are some tweaks that can help you and your family.
Fund your FSA or HSA
Many employers offer Flexible Spending Accounts (FSAs), which allow you to set aside up to $2,750 each year pre-tax for specific health care needs. And because you’re spending income that hasn’t been taxed, you’re essentially getting a discount equal to your tax bracket—24%, for example. What’s more, FSAs are versatile, able to be used both for typical medical expenses like copayments and deductibles (but not premiums, unfortunately), as well as a long list of add-ons like Invisalign, flu shots, acupuncture, and even hypnosis. With that versatility comes a caveat: FSAs are “use it or lose it” plans. If there are any unused funds at the end of the year, they expire and can’t be recovered, although some employers offer a grace period of a couple of months, or will let you roll over $500 to the following year.
The majority of workers who are eligible for FSAs, however, ignore them. If you’re among those people, make sure to ask your HR rep for details about signing up. Although enrollment is generally in the fall, you might have a chance to sign up within 30 days of starting with a new company, or when you marry or have a child, so make sure to ask.
FSAs are not to be confused with HSAs (health spending accounts). Like FSAs, these accounts also allow you to put away pre-tax money from your paycheck to pay for medical expenses. Unlike FSAs, though, their funds can be invested to grow tax-free, with no “use it or lose it” rule. However, HSAs are only available to people with high-deductible health plans (HDHP)—in other words, plans for which patients may need to lay out thousands of dollars in cash to meet their annual deductible. Contributing to an HSA is a good move if, like about a third of American workers with private insurance, you enrolled in an HDHP. Any money remaining in your HSA after you stop working can be used to pay for medical expenses in retirement.
Claim tax breaks if you can
If you buy a health care policy on a federal or state marketplace (rather than through your employer), you may be able to get money back. People with modest to low incomes (between 100% and 400% of the poverty line) may qualify for a special tax credit—basically, cash back.
So if you’re single, you may be eligible for part of that tax break if you earn under $51,520 (that’s 400% of $12,880, the federal poverty line in all U.S. states except Alaska and Hawaii). A family of four can get a break if their total household income is under $106,000. Check with the IRS for more information about eligibility and forms to file. In addition, if you have especially high medical expenses, you may be able to deduct the amount of expenses that exceed 10% of your income in a given year. (More info here.)
Treat it on the front end
By law, health insurance plans must cover a long list of preventive services for which you’ll pay nothing out-of-pocket. These include annual physicals, immunizations, and screenings for disease. Take advantage. In all likelihood, these routine services will save you unplanned and expensive care down the road.
Many plans have tiered costs for prescription drugs, meaning you pay less for generics and more for brand-name medication. And generic drugs, by law, must match the name brands in terms of dosage, safety, effectiveness, strength, and quality, as well as in the way they’re taken. This is what’s known as being “therapeutically equivalent.” So, let your doctor and your pharmacist know you favor generics when possible. If you can’t get a generic version, search prescription coupon sites like GoodRx for discounts.
Hit the gym
Insurance companies will often reimburse some of your gym fees each year—as much as $400 for you and $200 for a covered spouse. You can get paid back either for working out at a traditional fitness center (as they reopen) or, in some cases, for exercise class subscriptions and bike-sharing memberships. Ask your insurer for details. Many large employers also offer financial incentives such as gift cards, lower premiums, or cash for participation in workplace wellness programs, including smoking cessation, weight management, and behavioral coaching.
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Avoid urgent care outlets (if you can)
Copays tend to be higher for visits to urgent care clinics (the stop-and-shop convenience storefronts) than to your regular doctor’s office. Try to save urgent care visits for serious issues like high fevers or migraines that can’t wait a day or two for your primary care doc. Also note that for basic medical questions—i.e., something you’re tempted to Google—many insurance companies offer a free 24/7 nurse hotline to call. For true emergencies, you have no choice but to head to the emergency room, but it will be costly: ERs often charge three times the price of a visit to an urgent care facility, or even more.
Until recently, it’s been difficult to compare the costs of medical tests and procedures. That’s beginning to change with sites like clearhealthcosts.com, healthcarebluebook.com, and fairhealthconsumer.org. If you’re facing an expensive health issue, use these sites to find ranges of costs by category so that you can locate a provider offering a fair price. The prices won’t be exact, but they’ll help steer you to the right places to save money. A 2018 study found that comparison-shopping can reduce the cost of 40% of medical procedures, but only 1% of patients employ price-transparency tools to do it.
One last piece of advice: Do the math. Medical bills often contain errors like failing to subtract copays you’ve already made or billing you for a service your insurance should have covered. Scrutinize your bills, and raise any issues with your provider or your insurer. It’s a hassle, but it could save you real money.