Managing health care costs

Consider your options to help lower your health care costs and save money — now and in the future.
Daughter using stethoscope on mother

Health care can be among life’s significant expenses. But while essential, health care costs can be difficult to predict.

We can help you understand how these costs fit into your bigger financial picture and help you plan for significant health care expenses, so they don’t interfere with your long-term financial goals.

Here are eight ways to help you keep medical expenses under control.

In this article: 

Understand your current medical spending

The first step to better managing your health care costs is to understand how much you’re currently spending and how often you’re using your coverage.

To get an accurate number, look at any bills or receipts you’ve saved or review monthly bank or credit card statements. Many providers also have patient portals where you can review your records, including billing. Review and log the following items to help you understand your current medical spending:

  • Monthly health insurance premium
  • Copays
  • Coinsurance
  • Pharmacy
  • Vision and dental expenses

Plan ahead for medical expenses when possible

Medical emergencies and health surprises are impossible to predict. However, you may be able to plan for certain health care costs, such as:

  • Specialty services such as allergy shots, or treatment for chronic illness
  • Expenses related to the birth of a child
  • Elective surgery or other non-time-sensitive medical procedures

Review your health care plan options, considering the medical needs of you and your family members. A long-term mindset can help you better determine the right level of coverage and find opportunities for potential savings.  Setting aside money to cover known expenses in an FSA, HSA or cash reserve can help you pay for your health care needs without using a credit card or selling investments at a loss.

Make sure your health plan works for you

Many assume the health care plan with the most coverage is the best option. But that's not always the case — especially if you're younger or in good health.

It’s worth taking the time to periodically review your coverage and costs to ensure they work for you. Check your current health care plan and past medical expenses to see if you’re adequately using the benefits your policy provides. Low usage of the policy may indicate that you are over-insured. If bills for out-of-pocket costs are accumulating at a fast rate, it may signal that you are under-insured.

As you evaluate your coverage, here is an overview of the two major types of insurance plans:

  • Low-deductible health plans have higher monthly premiums and lower out-of-pockets health care costs. These plans may be a better choice for those with chronic health conditions or costly prescriptions or participate in high-risk sports/activities.
  • High-deductible health plans have higher out-of-pocket costs before plan benefits kick in, but they may come with the option to fund a health savings account (HSA), which can have significant tax benefits. These plans are generally optimal for healthy individuals who don’t anticipate major health care needs.

Advice spotlight

If you don’t anticipate significant medical needs, it may make financial sense to opt for a high-deductible health plan (HDHP) with an HSA. An HDHP can help you reduce your premiums; and an HSA can help you set aside money in a tax-advantaged manner for future qualified health care expenses.1 

Take full advantage of your health benefits

One way to save on medical expenses in the long-term — and make the most of your current health care plan in the short-term — is by taking advantage of the preventative measures and services your plan offers. Opting into annual health visits and routine screenings, for example, can help you manage health issues before they potentially become more complex (and more expensive) problems.

Similarly, health plans often include mental health coverage, gym membership discounts and wellness benefits. These offerings can help improve your physical and emotional health, of course, but it might also mean more money in your pocket. Many insurance providers now offer incentive programs that reward customers for establishing healthy habits or meeting wellness goals.

Advice spotlight

Double check with your insurer if coverage for an expense is denied. It’s common for consumers to mistakenly pay for medical costs that should have been covered by insurance. Watch your medical claims closely and if an insurer denies an expense that you expected to be covered, contact them with questions.

Comparison shop

When you can plan ahead for medical expenses, use the time to comparison shop. Seek out and identify lower-cost options for medications, procedures and appointments. For example, many generic drug prescriptions cost less than their name-brand peers.

Work with your health care provider and insurer to get the most accurate cost estimate. Consult with your doctor for guidance on whether the lower-cost option will adequately meet a comparable quality of care.

Enroll in an HSA or FSA

If you have a high-deductible health plan, you may have access to a health savings account (HSA); and in some cases, your employer may also offer a health care flexible savings account (FSA). These tax-advantaged accounts can be used to pay for common medical expenses like:

  • Copays
  • Dental expenses
  • Prescriptions
  • Vision exams and eyeglasses

HSAs can offer a triple tax advantage, meaning that contributions are pre-tax dollars, the invested assets grow tax-free, and withdrawals are not taxed if you use the distributions for eligible medical expenses. This translates into big tax savings on medical expenses.

FSAs are funded with pre-tax dollars. However, you generally don’t have the option to invest the contributions and funds generally must be used that same year depending on employer provisions.

Advice spotlight

Consider the potential benefits of saving your HSA funds for your retirement years, when medical expenses are often more significant. Because you own your HSA, any funds that aren't spent can be rolled over each year and stay invested. Over the years, the savings and interest earned on these funds can compound significantly — without tax liability.

Take medical expense deductions 

If your medical expenses are significant in a given year, you may be able to take a tax deduction. To do so, your qualified unreimbursed medical expenses must exceed 7.5% of your adjusted gross income (AGI) and you must itemize your taxes. 

Deductible medical expenses may cover:

  • Doctors, specialists and mental health professionals
  • Inpatient hospital care
  • Insulin and other prescription drugs

For a full list of eligible medical expenses, see the IRS website.

Consider long-term care insurance

While Medicare is a valuable health care program for retirees, its coverage for in-home care, assisted living and nursing home facilities is limited. Long-term care insurance can help fill this gap in coverage and potentially protect your legacy goals by reducing your need to draw down assets to pay for expenses associated with long-term care in your later years.

Acquiring insurance earlier can set you up for cost-savings down the road. For example, if you are 40 years old and in good health, you’ll pay a lower monthly premium than if you get a policy when you are older. 

Learn more: How to plan for the cost of long-term care

We’re here to help you manage the costs of health care

We can help you decide how to plan for your health care costs as part of your overall financial strategy.

Questions to discuss with us

  • How can I plan for costs of a future medical procedure?
  • I don’t have access to an HSA – where should I save money for a future medical expense?
  • How much should I contribute to my HSA?