4 in 10 Americans Aren’t Prepared for a Medical Emergency. This Account Could Help

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Medical bills can arise when you least expect them to. This account could help make sure you’re ready for them. [[{“value”:”

Getting hurt or sick is a major bummer, right? Instead of powering through your week, you instead have to hit pause, get treatment, rest, and recover. And if that weren’t bad enough, there’s the financial hit of getting sick or injured when the bills start rolling in — especially since these are events you can’t exactly anticipate.

Unfortunately, 41% of Americans do not feel prepared to cover unexpected out-of-pocket medical expenses, according to a survey by New York Life. But that’s a problem, since they have the potential to arise at any time.

One account, however, could set you up to cover those costs with less stress. So it pays to find out if you’re eligible for it.

An HSA could work to your benefit

An HSA, or health savings account, is sort of a cross between a savings account and an investment account. HSAs are subject to an annual contribution limit set by the IRS, and the funds you put in go in tax-free. You can then invest HSA funds you don’t need to use for medical bills right away. Investment gains in an HSA are tax-free, and so are withdrawals — provided that money is used to cover qualifying healthcare expenses.

Funding an HSA could make it easier to sock away money for medical expenses, due to the tax break involved. If you put $1,000 into an HSA, that’s $1,000 of earnings the IRS won’t tax you on. If you’re in the 22% tax bracket, that’s $220 in savings you can enjoy.

Of course, one hiccup you might encounter is not being eligible for an HSA if your health insurance plan doesn’t meet the requirements. This year, to qualify, you need a minimum individual deductible of $1,600 or a minimum family deductible of $3,200. Your out-of-pocket maximum is also capped at $8,050 for individuals or $16,100 for families.

When all else fails, pad your emergency fund or turn to an FSA

If your health insurance plan is not compatible with an HSA this year, don’t panic. While it’s disappointing to lose out on the tax benefits of an HSA, padding your general savings account is also very much an option if you have the cash to spare.

Ideally, you should aim to build an emergency fund with enough money to cover three months of essential expenses at a minimum. If you manage to reach that goal, there’s a good chance you’ll have enough savings to cover an unplanned medical bill.

Another option you can consider is contributing to a flexible spending account, or FSA, if an HSA is not on the table. FSAs don’t have the same strict requirements as HSAs, but they offer tax savings on the money you put in and tax-free withdrawals on qualified healthcare expenses.

However, you can’t invest FSA funds to grow your money. Also, FSAs require you to spend down your balance each plan year, whereas money in an HSA can be carried forward indefinitely.

The last thing you want is the stress of paying for medical bills on top of the stress of coping with a medical event itself. Do your best to contribute to an HSA so that incoming healthcare bills are less of a worry if one of these accounts is on the table for you.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More