Managing the hefty price tag of healthcare costs

Stethoscope wrapped around a calculator.

With all the advances in medicine and technology, it’s no surprise that people are living much longer than before. Medical breakthroughs don’t come cheap though. The rapid rise of health care costs could have a large impact on quality of life in retirement. Future retirees are going to need more money in order to get through those extra years.

Save and save again

Unfortunately, health insurance doesn’t cover all of your medical expenses. As a result, some workers are tempted to tap into their 401(k) savings account before they should. The best way to prepare for future healthcare costs as well as any other financial situation is to save as much as you can today.

Consider a Health Savings Account (HSA)

If your employer offers a high-deductible health plan, then you can save for current and future medical expenses in a health savings account. An HSA is 100% deductible (up to the legal limit), which means that withdrawals can be made to pay for qualified medical expenses, including dental and vision, are never taxed. They also have several tax advantages:

  • HSAs are tax-deductible
  • Any interest or earnings grow tax-free
  • Distributions are tax-free when taken for qualifying medical costs

Cut costs on prescriptions

You can save big by choosing generic medications. They have the same active ingredients, but cost less than brand name drugs. Ask your health care provider if there are less expensive offers and see if it’s possible for you to use them instead. Also, pharmaceutical companies may have coupons available through their websites, so don’t be afraid or ashamed to clip coupons that could lower the cost of your prescriptions. Even small savings can add up over time.

Choose in-network providers

Going outside of your health plan provider’s network to a non-participating doctor could result in an expensive – and avoidable – medical bill. When you visit in-network providers, you get access to the lower rates that they've negotiated with your health plan.

Use medical expense deductions

Medical expenses can take a bite out of your budget, especially if you have unforeseen emergencies that are not fully covered by your insurance. The IRS allows taxpayers some relief, making some of these expenses partly tax-deductible. If you incur extraordinary medical expenses in one year, you can deduct from your taxable income the medical costs that exceed 10% of your adjusted gross income (AGI). This can include out-of-pocket insurance premiums and a host of other expenses. For example, if you have an adjusted gross income of $80,000, then your threshold is $8,000. Let’s say that you incurred $10,000 of medical expenses. You could write off $2,000 on your tax return.

Healthcare costs are likely to be a significant part of your retirement budget. If you haven’t already factored these costs into your retirement, you may want to consider planning for it. The sooner you prepare, the better off you will be.

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