4 ways to take advantage of your healthcare spending before the end of the year

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Healthcare expenses can often be unpredictable and intrusive.

However, depending on your situation, there may be strategies you can use to make these expenses a little less financially taxing.

Because some of them involve taxes, experts say they shouldn’t be viewed in a vacuum. In other words, you may want to consult a professional to find out the impact any changes you make would have on other aspects of your finances.

Here are four things that can alleviate some of your medical costs in 2022.

1. Take advantage of reaching your deductible

If you’ve reached your plan’s deductible, you may be able to pay less for eligible healthcare services before the end of the year than you would after the deductible resets on January 1.

Your deductible is the amount you have to pay for your medical expenses (excluding premiums and usually copays or coinsurance) before your plan starts paying at least some of your expenses.

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Deductibles can vary widely across health insurance options and can run into the thousands of dollars, depending on the specifics of the plan. The 2021 average among employer-based plans was $2,004 for individuals and $3,868 for families, according to the Kaiser Family Foundation.

Once you’ve reached your plan’s deductible, you may or may not face copayments or coinsurance – it depends on your plan’s maximum amount, which may be higher. But either way, as long as the service is eligible for coverage, the cost would be lower than it was before you reached your deductible.

“Go do whatever you can before the year is out,” said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. McClanahan is also a doctor.

2. Don’t overlook FSA balances

If you have a flexible health spending account – which allows you to save pre-tax money to use on eligible medical expenses – your contributions come with a use-or-lose-it-at-the-end provision. the year.

“Make sure you use your FSA dollars if you have money that’s about to disappear,” McClanahan said.

Some employers either offer a grace period of up to 2.5 additional months to spend your balance on eligible costs or allow you to defer a fixed amount, up to $570 this year, so it’s worth knowing the rules from your employer.

If you need to use the money before December 31, you can spend it in a number of ways: doctor and dentist appointments, prescription drugs, and other health care services such as acupuncture and treatment for substance addiction.

Additionally, over-the-counter medications are eligible, as are menstrual care products and other items that have become relevant in the pandemic such as home Covid tests, masks and hand sanitizer.

3. See if you qualify for the medical expense tax deduction

There is a medical expense tax deduction, although it has parameters that prevent some taxpayers from using it.

For starters, you can only deduct health care expenses that exceed 7.5% of your adjusted gross income.

Additionally, you will need to itemize your deductions instead of taking the standard deduction, which for 2022 is $12,950 for single filers and $25,900 for joint filers. In other words, it can be a significant hurdle to clear.

“For a lot of people, it would take a lot of deductible expenses to exceed that standard deduction, which is so high that a lot of people don’t detail anymore,” McClanahan said.

However, she said, if you are close to qualifying and have medical procedures or services scheduled for 2023, it may be worth having them this year if you know you can cancel the expenses.

“Just make sure it’s worth it,” she said.

Also, keep in mind that expenses covered by money from FSAs or Health Savings Accounts (HSAs) — both of which are already tax-advantaged — don’t count for the deduction.

However, many other medical expenses matter, including co-payments, coinsurance, dental care, long-term care, and health care travel costs.

4. Maximize your health savings account

HSAs are similar to FSAs in that they save you pre-tax money to use on medical expenses. However, you can leave the money there for as long as you want.

“Dollars from an HSA are not use-or-lose and do not expire,” said CFP Kevin Brady, vice president and advisor at Wealthspire Advisors in New York.

This means that whatever you put into an HSA – plus any growth if your money is invested – can stay there for as long as you want. His earnings grow tax-free, and as long as the withdrawals are used for eligible medical expenses, the operation of those funds is also tax-free.

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These accounts are only used in conjunction with so-called high deductible health plans. This year, the contribution limit is $3,650 for individual coverage and $7,300 for families. In 2023, the cap will be $3,850 for individuals and $7,750 for families.

The more you can contribute, the lower your taxable income will be, whether you use the money for day-to-day health care expenses or let your balance grow.

If you have an HSA and haven’t maxed out your annual dues, you may have more time than you think to do so.

“The contribution deadline is [always] until next year’s tax filing date – mid-April,” Brady said.

For 2022 tax returns, the filing deadline is April 18, 2023.

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