Healthcare Savings Plans

Lots of awesome news for this week:

  • Happily no longer funemployed.
  • I have written 50 blog posts! Hurrah!
  • My grocery store just started stocking my favorite beer, which I have never seen in this state before. I may have freaked out in the aisle.

Not so awesome news:

Good counter-news:

  • My new job means I will have dental insurance and also a flexible healthcare savings plan!

Now, dental insurance is awesome and I am thrilled to have it. But my cavities are plentiful and expensive, and my insurance doesn’t cover the whole cost of mining my mouth.

I have never had a flexible healthcare spending account before, but I spent a little time researching them, now that I have one. Basically, it is money that you put aside before you pay taxes (another way to lower your tax bill, woohoo!!) that can be used for healthcare expenses like prescriptions, glasses or contacts (Lasik, even!) or…to fill in those cavities.

Flexible healthcare savings plans allow you to get more medical bang for your buck. Suppose I had to pay $1000 out of pocket for my cavities. Normally, I would have to pay that amount after I had already paid taxes on it, so it would cost me about $1300 (paid to the dentist and to Uncle Sam). With this savings account, I only have to pay $1000 to the dentist and none to Uncle Sam. Cavities stink, but at least I can save some cash-ola.

What is the catch?

  • You have to estimate the amount you think you will need up front. You don’t get to readjust, and you set the amount once a year.
  • If you don’t spend the full amount in the savings plan, you don’t ever get the money back (this is called a catch, friends).

My strategy is to plug in the amount I already know I am going to have to spend (hellooooo fillings) and then to estimate the remainder based on my past expenses. I am being somewhat conservative because this is a gamble. I would rather not forfeit money… and I know that I have some health expenses  (like new glasses) that I can take or leave, depending on how much money is left in my account at the end of the year. Worst case scenario I pay taxes on my healthcare expenses, which I would have done, anyway!

 

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3 thoughts on “Healthcare Savings Plans

  1. Kate- Another fine post as usual, well done!

    One more option to consider with some health plan offerings is a “Health Savings Account (HSA)”. This is similar to a Flexible Spending Account (FSA) but with one major perk: the funds you deposit are not lost after the year, there is no “use it or lose it” clause. Your money and the account (assuming it has even $1 in it), stay with you forever, and can be kept with you should you change employers. What you put in the account is also pre-tax (similar to an FSA).

    I’m speaking from the perspective of the CareFirst Maryland offerings, for reference.

    In this case, the catches are:
    1) You can only add up to a max amount per year.
    2) HSA accounts often come with a high deductible health plan, whereas FSAs can be added to a low or high deductible plan.
    3). You can continue to draw out of the account until the funds are gone, whenever that might be, but you can’t add to it unless you have the concurrent health plan (typically the high deductible plan). As I said, you can transfer the account and it’s balance should you change employers but keep an HSA health plan.

    Check out carefirst.com and irs.gov for more details on the plans and qualifying expenses. I also found the references at ehealthinsurance.com to be helpful.

  2. Great advice, Theresa! I didn’t even know those existed (because I have never been offered one….) but it sounds like it can be an awesome tool to help with medical expenses. Certainly takes some of the guesswork out!

  3. Pingback: Money and Relationships: My Squeeze and Me | twentiesinyourpocket

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