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By: Catherine Hawley, CFP®, posted on 09/26/2017

5 Ways to Reduce Healthcare Costs

5 Ways to Reduce Healthcare Costs

Healthcare takes a big bite out of just about every family’s budget, with research showing that the average employee spends $11,685 each year on insurance premiums and out-of-pocket expenses.

While many of those expenses are necessary (I would never recommend going without insurance or medical care), there are some ways to save money while still getting the care you need.

And with open enrollment coming up, this is the perfect time to put those strategies in place. Here are five ideas to keep in mind as you consider your options for the coming year.

1. Enroll in a High-Deductible Plan

While the instinct is often to run from high-deductible health insurance plans, they can, in some cases, save you significant money.

Think about it this way:

  1. Your premium is a guaranteed cost. You will definitely have to spend this money on healthcare.

  2. Your deductible is a potential cost. You may or may not have to spend this money on healthcare.

If you’re relatively healthy, you might end up saving hundreds, or even thousands, of dollars by switching to a high-deductible plan.

And no matter what, you should compare plans by adding the annual premium to the deductible and out-of-pocket max to see what your maximum possible cost could be.

In some cases there isn’t much difference between the high-deductible plan and the low-deductible plan, and the low-deductible plan at least gives you the possibility of spending less.

2. Self-Insure for Your Deductible and Other Out-Of-Pocket Costs

Whatever your deductible is, keeping that amount of money available in a savings account ensures that you can pay your medical bills without resorting to a credit card.

The last thing you want to do is compound the cost of your healthcare with interest. Self-insuring your out-of-pocket costs will prevent that from happening.

3. Contribute to a Health Savings Account (HSA)

If you’re eligible, contributions to a health savings account (HSA) offer a triple tax break:

  1. Your contributions are tax-deductible

  2. The money grows tax-free inside the account

  3. You can withdraw the money tax-free for qualified medical expenses

In other words, an HSA allows you to pay for your healthcare completely tax-free. This can lead to significant savings, especially if you live in a high tax state like California.

On a side note, those same tax benefits can make HSAs fantastic retirement accounts.

4. Contribute to a Medical Flexible Spending Account (FSA)

Medical flexible spending accounts (FSAs) offer the same tax benefits as health savings accounts, with the main difference being that money within an HSA rolls over year-to-year, while FSAs only allow a $500 carryover each year. This essentially makes FSAs “use it or lose it”.

Still, the tax breaks are a good way to significantly reduce the cost of your care. Contributing enough to cover your expected out-of-pocket medical expenses is usually a good idea.

5. Participate in Wellness Programs

Wellness programs typically offer financial incentives to employees for having certain types of care done or for participating in certain healthy activities. For example, you might get a small reward for having your annual physical as a way to promote proactive healthcare.

While the overall effectiveness of these programs can be questioned, as an employee you stand to benefit from participating and getting some of your hard-earned money back.

Cut Costs, Not Care

It’s always important to get the care you need and to have insurance that protects you from the big potential costs of a hospital stay or a chronic condition. There’s no sense in skimping when it’s your health at stake.

At the same time, there are certainly opportunities to reduce the cost of that care. Keep an eye out for these opportunities during your next open enrollment period, and hopefully you can get the care you need at a cost you can afford.

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