When our daughter’s stomach ache was diagnosed as appendicitis a few years ago, we were glad we had set aside funds for healthcare. Her treatment turned out to require emergency care, surgery, and hospitalization. And no, none of that was routine. But planning ahead helped.
Having a plan around how you use your health savings account (HSA) can be a great way to plan for both the unexpected and the expected. Here’s what we recommend to make that happen.
1. Forecast Your Healthcare Needs
Take a look at your past year: when does your family tend to spend more money on healthcare expenses? In the spring due to allergy season? During the fall, when school begins and children are prone to injuries (thanks recess!)?
For my family, September always brings respiratory infections—the common cold, the dreaded flu, and (occasionally) pneumonia. Those ailments sometimes require some hefty services like x-rays and nebulizers. But just purchasing numerous medications to treat illnesses can add up.
Instead of trying to forecast each month, you may choose to estimate your family’s medical needs quarterly. When our youngest daughter needed braces, we anticipated what we needed to outlay to cover orthodontic treatment and budgeted accordingly.
You will encounter surprises, too. And no one can predict a family’s health needs precisely—like our daughter’s appendicitis—but the goal is to have enough funds in your health savings account to pay for qualified medical expenses when you need to. And the great thing about HSAs is that if you over-budget, the funds just roll over to the next year. You never lose money, like you would with an FSA.
2. Make an HSA Budget
Once you’ve done a bit of the math around what you, your spouse, and your children may need in the upcoming year, it’s time to create a spending plan for HSA funds. Do you have statements and other financial records for reference? Remember to list health insurance deductibles, co-pays for routine doctor’s visits, medical supplies, and other healthcare expenses. Consider your medical needs through the seasons too.
- Spring: buying allergy medicine
- Summer: stocking up on bandages, a first aid kit, and sunscreen
- Fall: getting flu shots
- Winter: scheduling routine appointments
The IRS has approved hundreds of health expenses. Eligible medical expenses include eyeglasses, crutches, hearing aids, chiropractic care, psychiatric care, and physical therapy. Check out our list of eligible expenses here. By double-checking what the IRS has determined is an eligible expense, you avoid paying additional income tax and penalties by mistake.
Just like your regular budget, organize the list in categories. Then prioritize them by cost and importance. The first priority, for example, is deductibles, copays, and prescription medication. The second tier is routine purchases for must-haves like glasses or medical supplies for chronic health conditions. The last tier may include over-the-counter medications.
3. Set Routine Appointments at End-of-Year
When you contribute to your HSA throughout the year, your funds will significantly grow by year’s end. Does your employer offer to match your contribution? Lucky you! Bonus points (and money!) if you take advantage of this wealth-building benefit.
Routine check-ups and other non-urgent appointments can be scheduled later in the year. This will help your financial picture because you can anticipate costs and, thus, have time to set aside money to cover those costs. This includes copays for appointments… but don’t forget fees for lab work and allergy tests. Those can be sneaky and significant.
4. Ask About Payment Options
Hospitals can be pretty ruthless if you don’t pay, but they can also be pretty understanding if you are upfront with them in asking about payment options. If you have an unexpected medical need or you can’t wait until the end of the year to get treated, be sure to ask your medical provider if they would be open to a payment plan. Frequently, if they know you’re putting money into an HSA and that you will be able to pay in (guaranteed) increments, they will work with you.
Things happen, and life often seems to change things up at the drop of a hat. Similarly, your approach to spending needs to adapt to the changes of you and your family. It’s easier to weather the changes with a plan in place than to have no plan at all. So review your budget quarterly to see if any adjustments need to be made. And remember: your HSA is always here to help.