Roberta Armijo provides 7 ways to lower health care costs and save money
No one can fully predict future health care needs or medical expenses, but there are proactive steps you can take to manage your costs today and save money in the long run.
We will provide personalized guidance on preparing for big medical costs in the long term and review benefits options to potentially save you money in the short term.
Here are seven ways to help you keep medical expenses under control.
1. Make sure your health insurance coverage is working for you
Many assume the health care plan with the most coverage is the best option. But that’s not always the case — especially if you’re younger and in good health.
Check your current health care plan and past medical expenses to see if you’re adequately using the benefits your policy provides. Low usage of the policy may indicate that you’re over-insured. If bills for out-of-pocket costs are accumulating at a fast rate, it may signal that you’re under-insured.
As you evaluate your coverage, here are some of the pros and cons of the two major types of insurance plans:
Low-deductible health plans have lower payments upfront and higher monthly premium. These plans may be a better choice for those with chronic health conditions or costly prescriptions or those who participate in high-risk sports/activities.
High-deductible health plans have higher out-of-pocket costs before plan benefits kick in, but they may come with the option to fund a health savings account (HSA), which has significant tax benefits. These plans are generally optimal for healthy individuals who don’t anticipate major health care needs.
2. Anticipate future medical needs and expenses, when possible
Medical emergencies and health surprises are impossible to predict. However, certain expenses you may be able to plan for, such as:
Prescription medication
Specialty services such as allergy shots, or treatment for chronic illness
Expenses related to the birth of a new child
Elective surgery or other non-time-sensitive medical procedures
Review your health care plan options, considering the medical needs of you and your family members. A long-term mindset can help you better determine the right level of coverage and find opportunities for potential savings.
3. Comparison shop
When you are able to plan ahead for medical expenses, use the extra time to comparison shop. Seek out and identify lower-cost options for medications, procedures and appointments. For example, many generic drug prescriptions cost less than their name-brand peers.
Work with your health care provider and insurer to get the most accurate cost estimate. You’ll also want to consult with your doctor for guidance on whether the lower-cost option will adequately meet a comparable quality of care.
4. Enroll in an HSA or FSA
If you have a high-deductible health plan, you may have access to a health savings account (HSA); and in some cases, your employer may also offer a health care flexible savings account (FSA). These tax-advantaged accounts can be used to pay for common medical expenses like:
Copays
Dental expenses
Prescriptions
Vision exams and eyeglasses
HSAs, in particular, can offer a triple tax advantage, meaning that contributions are pre-tax dollars, the invested assets grow tax-free, and withdrawals are not taxed if you use the distributions for eligible medical expenses. This translates into big tax savings on medical expenses.
FSAs are funded with pre-tax dollars. However, you generally don’t have the option to invest the contributions and funds generally must be used that same year based on employer provisions.
Advice spotlight
HSAs can be an effective tool for medical expenses in retirement
HSA funds you don’t spend accumulate year over year. Building up your HSA account during your working years can help cover health care expenses now and in retirement with tax-free withdrawals when used appropriately.
5. Take medical expense deductions
If your medical expenses are significant in a given year, you may be able to take a tax deduction. To do so, however, your qualified unreimbursed medical expenses must exceed 7.5% of your adjusted gross income (AGI) and you must itemize your taxes.
Deductible medical expenses may cover:
Doctors, specialists and mental health professionals
Inpatient hospital care
Insulin and other prescription drugs
For a full list of eligible medical expenses, see the IRS website.
6. Consider insurance to pay for the high costs of long-term care
While Medicare is a valuable health care program for retirees, its coverage for in-home care, assisted living and nursing home facilities is extremely limited. Insurance can help fill this gap in coverage and potentially protect your legacy goals by reducing your need to draw down on assets to pay for expenses associated with long-term care in your later years.
Acquiring insurance earlier can set you up for cost-savings down the road. For example, if you are 40 years old and in good health, you’ll pay a lower monthly premium than if you had obtained a policy when you were older.
You have options when it comes to insurance coverage, including separate long-term care insurance, hybrid policies combining life insurance with long-term care insurance and life insurance with long-term care riders. We will help you determine the optimal time to begin looking at long-term care insurance solutions, as well as what type of policy may help you meet your care needs and financial goals.
7. If you’re near retirement, consider strategies to lower your Medicare premiums
The more income you withdraw in retirement, the more you may have to pay in Medicare monthly premiums. For Medicare Part B and Part D, if your modified adjusted gross income as reported on your federal tax return from two years ago exceeds certain thresholds, you will have to pay a surcharge on top of the standard premium. The surcharge, known as the Income Related Monthly Adjustment Amount (IRMAA), kicks in when your MAGI is above $97,000 for an individual and $194,000 for a couple.
If you’re near retirement, strategies such as a Roth conversion can potentially reduce your taxable income and may help you avoid the IRMAA surcharges for Medicare parts B and D. Depending on your income, you could save up to hundreds of dollars in monthly premiums.
We will discuss pre-retirement strategies and help you determine an income distribution strategy that accounts for IRMAA surcharges and taxes.
Let’s discuss your options
Reach out to us to discuss ways you can save money on near-term health care expenses, while also planning for future medical costs, like those in retirement.
Phone – 626.623.6183
Email – roberta.b.armijo@ampf.com