Most of us deal with health care costs only when forced. But health care coverage and medical expenses can make up a large piece of our financial picture at different times in our lives and preparing for them can make the difference between financial stress and security.
Whether you are still working or retired, there are things you can do to lower your costs and increase your health care resources:
Create a Health Care 401(K) Plan
Many companies have moved to high deductible health plans (HDHPs) to help reduce insurance premiums, and most HDHPs are combined with a health savings account (HSA). Some employers make contributions into their employees’ accounts while others are funded through employee payroll deductions.
Contributions you make to your HSA go into the account pre-tax, the funds grow tax free, and when used for healthcare expenses they can be withdrawn tax free, so HSA accounts are a tax-efficient way to pay for healthcare. For 2021, an individual can contribute up to $3,600 into their account while an employee with family coverage can contribute up to $7,200 – with an additional ‘catch-up’ contribution of $1,000 if you’re over 55 years old. But these contributions aren’t always used to their maximum advantage.
HSA accounts are typically invested in money market funds and most participants deplete them each year. But if you’re young and don’t have many medical bills, or are at a point in life where you can pay your deductible costs with your income, your HSA account can be used as a powerful financial tool.
HSA account providers like hsabank, Lively and Fidelity allow you to transfer your contributions into a TD Ameritrade or Fidelity brokerage account, where you can invest in a diversified mutual fund that fits your risk and timeframe. This account can act like a 401(K) plan for health care expenses, growing tax free until you need it. Invested and not touched, the balance can grow quickly.
If you change employers, you can keep your HSA investment account. If you decide to take a sabbatical or retire before you’re eligible for Medicare, it can be used to pay for health insurance coverage. And if you have medical expenses that aren’t covered for some reason, the account can help fill that gap.
Once you’re covered by Medicare you can no longer make additional contributions to your HSA account, but you can still use the funds you’ve accumulated to pay health care expenses for the rest of your life.
Pay Attention to What You Pay
Medical expenses can be significant, but we rarely examine what we’re paying because we’re focused on the emergency or health problem in front of us. And when you try to compare providers, it’s not easy getting that information. Hospitals are required to begin disclosing their prices, but the industry has sued to block the ruling. While we wait for more transparency, there are some things you can do:
- Find out which urgent care providers are covered under your insurance plan and located closest to your home and office. Most trips to the ER are for broken arms, not heart attacks, but getting a bill for an out-of-network emergency room service might cause one. I was able to quickly obtain a list of urgent care providers within five minutes of my home zip code by going onto our health insurance provider’s website. If you have a real emergency, you should absolutely go to the closest emergency room, but urgent care offices are a lower cost alternative for help that’s urgent, but not life threatening.
- Health care procedures can be shopped for before you schedule them in the same way. A routine mammogram in my zip code area ranges from $151 to $292. Since this is a relatively small expense the 2x difference might not be significant. But costs for hernia surgery ranged from $7,800 to $12,500, and that difference could fund a vacation. If your insurance provider’s website doesn’t provide this service, you can go to FairHealth Consumer, a website that provides cost estimates for thousands of procedures for guidance on price ranges in your area.
- Compare pharmacy prices before setting up your prescription refills. I don’t recommend ordering prescriptions from shady websites, but there are significant price differences between national, reputable pharmacies. GoodRx is an app that provides price comparisons along with coupons to lower costs even more. Using the site, the same 90-day refill for our family was $34.99 at Costco, $37.79 at Kroger, $127.81 at CVS, and as high as $191.68 at Walgreens.
Adopt Healthy Habits
It has been difficult maintaining our fitness routines during Covid-19, and when we’re under stress it’s easy to use comfort food and alcohol to help us feel better. I’m not here to judge! We all know regular exercise, moderate eating and drinking help our bodies withstand aging and illness and allow us to spend more money on fun things vs. medication over the long run. At the same time, it’s important to schedule routine annual check-ups and health screenings. Catching a health issue in the early stages can make the difference between a small problem and a life-threatening one.
Manage Your Medicare Enrollment and Premiums
In retirement, moving from an employer-sponsored health insurance plan to private, public marketplace or Medicare coverage can be confusing, and we’re here to guide you if you need help.
One mistake that can impact your premium cost for years is not meeting your deadline for Medicare sign-up. While there are some exceptions, most retirees need to sign up for Medicare at age 65 to avoid the late-enrollment penalty of 10% for each 12-month period you go past the deadline. This penalty is permanent and increases the longer you are not enrolled.
Once enrolled in Medicare, your Part B (Medical) and Part D (Drug) coverage premiums may be subject to an income-related monthly adjustment amount (IRMAA), which is another area where planning can help.
While reportable income like Social Security and Required Minimum Distributions from IRAs can’t be avoided, we can review investment sales to determine their impact on your premium costs before placing trades. For 2021, a $1,000 difference in modified adjusted gross income can make a $2,600 annual difference in Medicare part B and D premiums for a couple filing jointly.
Don’t Ignore Reality
My parents are still in good health, and live independently, but they are two hours away despite my efforts to get them to move closer. They are extremely frugal people who live well within their means, so they aren’t faced with the worry of being unable to cover their health care costs, but they live in an area that doesn’t have the population or infrastructures to provide such care. If it doesn’t exist, it doesn’t matter if you can pay for it.
Lately they’ve been forced to face reality, as friends in their 90’s had serious medical emergencies that forced them to scramble to get help. The husband had to be rushed to the hospital for surgery while my parents and other friends from church set up shifts to provide round-the-clock care for his invalid wife at home. The couple had refused to move closer to family, then forfeited a deposit by not moving into a continuing care community when their name came up, and now there are no rooms available. Living at home is no longer possible, so everyone is trying to come up with a solution in the middle of a crisis.
No matter how much we exercise, eat right, and take care of ourselves our bodies will wear out, and we need to plan for it. Facing reality and putting together a plan while we’re still healthy and clear-headed means we can make the adjustments needed on our own terms vs. being forced to take the only choice that is left.
No matter what phase of life we’re in, planning for our health care means no matter what comes up we are better positioned to deal with it. And that’s what planning is all about.