Methods of Making Sure You Can Afford Your Health Insurance

Insurance protects from the things that can go wrong in life. One of the most important forms of insurance you can hold is health insurance. 

Health insurance could end up saving your life one day without forcing you to go into financial ruin to do so. Like many things, health insurance isn’t always cheap. If you’re worried about whether not you can afford it, below are some strategies to deploy.

Obtain State Provided Health Insurance

Quite often, the most cost-effective plans are “state health insurance.” Investigate what your state offers. These plans often work in conjunction with Medicaid and the Health Insurance Marketplace to provide the cheapest possible health insurance to those that qualify. 

For certain low-income individuals, this insurance may be provided virtually cost-free. Investigate your state’s healthcare website to see if you qualify and what the enrollment process consists of.

Use a Health Savings Account

Another choice you can use to help you save on health insurance expenses is an HSA, short for Health Savings Account. This is a special kind of savings account. 

Funds placed in the account are not subject to US income tax. They can then be used to pay for your deductible. If you have high deductibles with your insurance plan, this is one way to help slash some costs when paying off your yearly deductible.

Get Insurance Through an Individual Health Insurance Plan

Don’t be afraid to look for individual health insurance outside of other options like an employer or the Health Insurance Marketplace. 

Today, there is a lot more competition than ever before in the insurance market, and other factors are helping to bring costs down for the insured. 

Make sure to speak to an insurance agent, like someone at American Eagle Health Insurance, and discuss the different possibilities of obtaining insurance for yourself and for your family. 

You may be able to obtain significant discounts versus other options. Adding more family members to your plan could bring down costs even more.

Utilize the Children's Health Insurance Plan

Another option you should consider if you have children is CHIP, the Children’s Health Insurance Plan. This is a plan for children of low-income families that is supported by a collaboration between the US Department of Health and Human Services and different states. 

It is designed specifically for families with modest incomes with too much income to be approved for Medicaid. It can provide low-cost coverage for families with qualified children, thanks to the matching funds provided by the federal government.

Obtain Coverage Through an Employer

One of the best ways to obtain affordable health insurance is through your employer or your spouse's employer. Under such plans, the employer often pays for part of your premium. 

The insurance company is also incentivized to provide cheaper rates because they insure an entire group of people. While certain employees may get sick, not all of them will. This brings down costs.

While healthcare can be expensive, it doesn’t have to be necessary. Investigate the options above for bringing the cost of your coverage down. You don’t have a choice, really. Health insurance is necessary in today’s world that your family cannot go without.

Saving for Retirement with a Health Savings Account

Health Savings Accounts, or an HSA, are quickly becoming more and more popular in the United States. Not only are they a useful vehicle for saving for health care costs and expenses, but they can be a valuable tool for retirement savings as well. 

If you have a high-deductible insurance plan, you are eligible for an HSA account. Many plans and companies offer an HSA account to accompany your insurance, or you may open your own account at a financial institution. 

Health Savings accounts can be rolled over year after year and the money in your account can be invested. Often, Health Savings Accounts are often confused with Flexible Savings Accounts, which do not roll over each year.

An HSA is a great way to get and use the tax-free money for medical expenses that you may incur over your lifetime. Health Savings Accounts save you money on taxes in three different ways:

1. Your money goes into your account before it is taxed and is not counted toward your taxable income. 
2. You can invest the money in your Health Savings Account and it grows tax deferred. Any interest, dividends, or capital gains you earn are not taxed, as long as they are spent on medical expenses. 
3. When you withdraw the funds for qualified medical purposes, they are withdrawn tax-free as well - which includes all deductible and health care costs that are not covered by your insurance plan. 

Tax Implications

Since Health Savings Accounts can be rolled over year after year and the money within the account can be invested, it is another great way to save money for retirement. 

Once you turn sixty-five, the money in your health savings account can be withdrawn without a tax penalty and can be spent on non-medical expenses. The money is taxed as income, like with a traditional IRA, but there are no other tax penalties associated with using the money for things other than medical expenses. 

However, once you turn sixty-five, you are no longer able to contribute to your account, so be sure to start saving early. Saving early will help give you a good nest egg for any medical issues that may arise at any time in your life and prevent you from having to make or use a bad credit loan.

Limits and Deductibles

There are limits on who can contribute to a health savings account. You cannot be enrolled in Medicare or claimed as a dependent by another person. Your health insurance plan also must qualify as a high deductible plan. 

The qualifications for that may change, but currently, your deductible must at least $1300 for an individual and $2600 for families. The amount of money that can be placed into an account is also variable between individuals and age. 

For those under the age of fifty-five, you currently can place up to $3400 into an account per year for an individual and as much as $6750 for families in 2017. If you are over the age of fifty-five, you may add an additional one thousand dollars per year into the account as a catch-up contribution until the age of sixty-five. 

These limits are set by the IRS each year and will increase over time, as they are adjusted for inflation.

Planning for Retirement

Funds from a 401K or traditional IRA are taxed regardless of how the money is spent. With an HSA, as long as the money is spent on medical expenses, the money and your earnings will not be taxed. 

If you are over sixty-five and need the money for expenses other than medical, you can simply use the money as regular income and taxed as a 401K or traditional IRA would be, without additional tax penalties. 

The HSA also does not require account holders to withdraw funds at a certain age, as with some IRA’s and 401k’s. They can remain in the HSA for as long as the account holder wants.

Are Health Savings Accounts the Next Retirement Plan?

retirement (Photo credit: 401(K) 2013)

It is no secret that end of life care consumes the majority of health care dollars. In fact, about 80% of all money spent on health care is spent during the last two years of a person's life. The problem with this is that many people have exhausted savings and sold off assets by that point to afford care. Health savings accounts (HSAs) may provide a solution to the problems of health care expenditures in old age. In some ways, they are like a retirement plan for your health needs. 

Qualified Expenses

HSAs, such as those offered by HSAforAmerica.com, are health care plans that provide tax benefits. In essence, as long as the money that is put into an HSA is spent on health care, it is tax free. This feature of HSAs has led many to compare them to individual retirement accounts (IRAs) and other tax-advantaged retirement plans. In truth, HSAs are even better than most IRAs because while HSA monies are guaranteed never to be taxed if spent on health care needs.

Qualified expenses can include a number of things that might traditionally be thought of as lodging. For instance, nursing home and retirement community expenses are completely covered so long as the individual lives in the facility due to medical necessity. Even hotel stays, home improvements, care equipment, alternative medicine, certain types of furniture, and more are covered if necessary for medical care. That means that room, board, transportation, and meals can be paid for, tax free, from HSA savings.

Essentially, the HSA offers a true tax free way to save for retirement. Though it may seem like a gimmick, the truth is that it is cheaper to pay for end of life care through an HSA than through Medicare or traditional insurance. HSA money is simply earnings that have been set aside over time. The best way to look at an HSA as encouragement to save for retirement, something everyone ought to be doing anyway.

As a final note, at age 65, HSA money can be withdrawn for non-medical purposes without penalty. Though you will pay tax on the money, it works just like an IRA, so the tax rate is lower than for other types of income. That means that an HSA is probably a better safety net for most people than an IRA due the flexibility that an HSA offers.

How to Treat an HSA Like a Retirement Account

Start Early

The key to a successful HSA that will see an individual through retirement is to start early. An account that is allowed to grow relatively untouched, for an average of 20 years, will be worth a substantial amount of money after compound interest is considered. If you can find a job with an employer who contributes, especially early in your career, savings will accumulate even faster.

Use Other Accounts

There is no rule that says you must use HSA funds before you use other monies to pay for health care. If you can afford it, then you might be further ahead to pay for medical costs without using HSA funds. Then, the roll over from year to year will be greater and the compounding effect will be enhanced.

Don't Touch

Though it will be tempting, from time to time, to use HSA money for some large expense beyond health care, don't do it. The penalty for doing so is 20% over and above the tax you will pay by claiming the withdrawal as income. Leave the money where it is, unless you need it for health care.

Coming Out Ahead

If you start early and save diligently, an HSA could be the best retirement plan you invest in. Remember that HSA funds can be invested, so don't be afraid to go for mutual funds or other investments just as you would with other retirement income. Remember that you are investing in your health with this money, so treat it with the respect it deserves.

Ron Sheffer researches money matters in the healthcare industry. He often blogs about his insights to help people make smart decisions.

Use It or Lose It: Spending Suggestions for Your FSA

 (Photo credit: Amarand Agasi)

Unlike funds from Health Savings Accounts, or HSAs, which can be rolled over into the following year, funds from Flexible Savings Accounts or FSAs are forfeited if they’re not spent by the end of the calendar year. The Internal Revenue Service has also imposed new limits on FSA funds beginning in 2013. At present, there are no limits on how much money each person can put aside in an FSA. However, as of 2013, the maximum amount of funds allowed in an individual FSA will be limited to only $2,500 

If you’ve collected funds in an FSA, now is the time to begin considering how you will spend those funds to avoid losing them. Whether you have a few hundred dollars or thousands set aside, you don’t want to forfeit what is, after all, your own money.

Extra Eyewear and Supplies

If you wear contacts, glasses, or both, consider stocking up on extra eyewear and eyewear care equipment as a means of exhausting leftover FSA funds. Purchase contact lens solution in bulk or look ahead and purchase a year’s worth of disposable lenses, like Acuvue Moist. Splurge on an extra pair of eyeglasses so that you won’t be left fumbling around if you lose or break your main pair of eyeglasses. Splash out on a great pair of prescription sunglasses and your eyes will thank you on every summer day. 

Expensive Medical Procedures 

Are you overdue for an overall physical examination, oral examination or immunizations? Are you thinking of getting braces or having other dental work done? Has your doctor advised you to obtain physical therapy for acute or chronic pain? If you have accumulated several thousand dollars in your FSA account, you should seriously consider going ahead with those procedures this year. Many medical professionals will allow you to set up payment plans that will allow you to pay for ongoing treatment from your present FSA even after the beginning of 2013, Smart Money reports. 

Prescription Refills

FSA funds can be used to purchase prescription medications for which you must pay out of pocket. If you are running low on prescription medications, now is the time to restock them. If you have the funds available, ask your physician to supply you with a prescription that would allow you to purchase several months worth of prescriptions at a time, which may also allow you to save money. Having extra medication on hand can be helpful when you travel or if you’re facing a budget shortfall. 

Replenish Your First Aid Kit

As of January 1, 2011, funds from an FSA could no longer be used to buy over the counter medications, except for insulin. However, over the counter first aid supplies are still a valid FSA expenditure. Non-drug items such as bandages, sterile gauze, tweezers, gloves, scissors and blankets are useful items to have on hand in your home, your car and in your office, and all are allowable. Accidents can happen anywhere, and having a well stocked first aid kit can mean the difference between saving a life and life tragically lost.

Richard Harrelson is a personal finance researcher. He is constantly looking at ways people can adapt to a changing economy and end up in front. His articles mainly appear on personal finance blogs.

For Further Reading

Benefits Pro: 2013 HSA and FSA Cheat Sheet
benefitspro.com/2012/05/08/2013-hsa-and-fsa-cheat-sheet
Investopedia: Seven Last-Minute Ways to Spend Your FSA Dollars
investopedia.com/financial-edge/1211/7-last-minute-ways-to-spend-your-fsa-dollars.aspx#axzz2Co3NQMsM
Kids Health from Nemours: First Aid Kit
kidshealth.org/parent/firstaid_safe/home/firstaid_kit.html
Smart Money: Last-Minute FSA Moves
smartmoney.com/spend/deal-of-the-day/lastminute-fsa-spending-moves-1330645620564/