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There are steps you can take to handle unplanned medical bills.
There are certain expenses you’re pretty much always going to have to bear. For example, you need a roof over your head, which means you’ll have to spend some money on housing costs, whether it’s to cover rent, a mortgage loan, or property taxes and upkeep once your home is paid off. And since we all need to eat, you’ll always need to budget money for groceries.
Healthcare is another one of those perpetual expenses that can’t be avoided. But medical bills commonly catch consumers off guard, to the point where a lot of people wind up in debt due to healthcare expenses they can’t cover outright.
In a new report by the CFPB (Consumer Financial Protection Bureau), 30.9% of people encountered a surprise medical expense between Feb. 2021 and Feb. 2022. And if you’re certain that an unplanned healthcare bill would send you directly into debt, it’s important that you try to set funds aside to cover medical costs specifically. In fact, there’s one account it pays to turn to that could make saving for healthcare a lot easier.
Take advantage of an HSA
If you’re enrolled in a high-deductible health insurance plan, then your coverage may be compatible with a health savings account, or HSA. And if so, it pays to take advantage of that option and set money aside in one of these accounts.
HSAs are loaded with tax breaks, and that alone can make it easier for you to free up money for healthcare spending. For one thing, the money you put into an HSA is tax-free, just like you aren’t taxed on traditional IRA account contributions. That’s important, because let’s say you’re really strapped for cash and can’t easily afford to part with a chunk of your income. If you put $1,000 into your HSA, that’s $1,000 of earnings the IRS won’t tax you on, which can offset your contribution.
Also, HSA funds never expire. There’s no deadline to use them, and you can invest any money you don’t need right away so it grows into a larger sum. Any investment gains you enjoy in your HSA will be tax-free, and HSA withdrawals are also tax-free when used to pay for qualified medical expenses.
Other options to look at
HSAs are a really fabulous savings tool, but your health insurance plan may not be compatible with one. If that’s the case, you can look at setting money aside for medical bills in a flexible spending account, or FSA.
Like HSAs, FSA contributions are tax-free. But you can’t invest funds you don’t need right away, and you can’t carry money forward year after year. So you’ll need to be careful when contributing to an FSA so you don’t end up losing money.
Of course, you can also set money aside for healthcare costs in a regular savings account. You won’t enjoy any tax breaks by going this route, but you’ll get a lot of flexibility.
Either way, medical bills can pop up at any time, even if you’re in relatively good health. The more you’re able to save for healthcare costs, the less stressed you’ll be when they inevitably arise.
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