How to Reduce Out-of-Pocket Health Care Costs

April 02, 2015

Are you paying more for out-of-pocket health care costs? If so, you’re not alone. There’s a growing trend to higher deductibles for health insurance policies, which means we’re increasingly having to pay at least $1-2k out-of-pocket before the insurance kicks in. Here are some ways to reduce those costs:

1) Have health insurance. If you don’t have health insurance through work, it’s easier to buy insurance on the individual marketplace than ever. Even a policy with a sky high deductible can still limit your risk for truly catastrophic costs. Besides, the Affordable Care Act literally raises the penalty for not having health insurance while making it easier for many people to get it since insurers can’t discriminate based on pre-existing conditions and depending on your taxable income, you may be eligible for tax credits that can substantially offset the premiums. Even longtime Obamacare foe Senator Ted Cruz is considering signing up.

2) Take advantage of preventative care. All plans in the Affordable Care Act exchanges and every high-deductible health plan I’ve personally enrolled in covers preventative care without a deductible. That can make good business sense for the insurance company because skimping on that care can end up costing a lot more in the long run. That’s true for you too (plus the emotional toll of being sick) so make sure you take advantage of it if your plan offers it. As they say, an ounce of prevention…

3) Save for medical expenses. Medical expenses are just one more reason to have an emergency fund. Having at least a couple thousand dollars in the bank should be the top financial priority. You can start by having a small amount transferred from your checking account to a separate bank account each month and then try to gradually increase that amount over time until you have at least enough to cover 3-6 months’ worth of necessary expenses. Not sure where to find the savings in your budget? Here are some ideas.

4) If possible, contribute to a health savings account (HSA) and/or a healthcare flexible spending account (FSA). These accounts allow you to put away money pre-tax and then use the money tax-free for qualified medical expenses. If you’re in the 25% tax bracket, that’s like getting a 25% discount on all your out-of-pocket expenses. Just keep in mind that the FSA is use-it-or-lose-it so it’s really only suitable for expenses you know you’ll have like a routine checkup (see #1) or prescription drugs, contact lenses, or glasses. (If you have an HSA, your FSA is limited to dental and vision expenses.)

On the other hand, HSAs can be carried over year to year and even invested for future medical expenses (or for any purpose without penalty after age 65) so you might want to contribute even more than you think you’ll spend. In fact, I max out my HSA and try not to use it even for health care expenses so I can let it grow for as long as possible and eventually use it tax-free for future medical expenses. (If you follow this approach, be sure to still keep receipts for medical expenses since you can reimburse yourself for those costs from your HSA tax-free if you need the money in the future.)

5)Be a smart shopper. While it may feel unfamiliar, start treating out-of-pocket health expenses like everything else. Ask yourself if each expense is something you really need. If it is, shop around to see where you can get the best value. Your insurance company may have a web site that lets you compare prices from different providers. This is how high-deductible plans are supposed to work to hold down costs.

You may not like our health care system and prefer a Canadian-style single payer system of national health insurance or you may want it to be even more market-based like Switzerland or Singapore. Unfortunately, we go to the doctor with the health insurance we have, not necessarily the one we want so try to save some money in the meantime. You can always use some of those savings to support the candidates with health care policies you support.