4 ways to take advantage of your health-care expenses before year-end

Health-care expenses can often be unpredictable and unwelcome.

However, depending on your situation, there may be strategies you can employ that make those outlays a bit less financially painful.

Because some of them involve taxes, experts say they shouldn’t be viewed in a vacuum. In other words, you may want to consult a professional so you know the impact any moves you make would have on other aspects of your finances.

Here are four things that may ease some of the sting of your 2022 medical costs.

Your deductible is how much you have to pay for your medical costs (excluding premiums and typically copays or coinsurance) before your plan starts paying at least some of your expenses.

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Deductibles can vary greatly among health insurance options and can be thousands of dollars, depending on the specifics of the plan. The 2021 average among employer-based plans was $2,004 for individuals and $3,868 for families, according to the Kaiser Family Foundation.

Once you’ve met your plan’s deductible, you may or may not face copays or coinsurance — it depends on your plan’s out-of-pocket maximum, which may be higher. But either way, as long as the service qualifies for coverage, the cost would be less than it was before you reached your deductible.

“Go get everything done you can before the year ends,” said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. McClanahan is also a medical doctor.

If you have a health flexible spending account — which lets you save pretax money to use on qualified medical expenses — your contributions come with a use-it-or-lose-it provision when the year ends. 

“Make sure you use your FSA dollars if you have money set to disappear,” McClanahan said.

Some employers provide either a grace period of up to 2.5 extra months to spend your balance on eligible costs or allow you to carry over a set amount, up to $570 this year, so it’s worth finding out what your employer’s rules are.

If you need to use the money before Dec. 31, there are many ways you can spend it: doctor and dentist appointments, prescription drugs and other health-care services such as acupuncture and addiction treatment.

Additionally, over-the-counter drugs qualify, as do menstrual care products and other items that became pertinent in the pandemic such as at-home Covid tests, masks and hand sanitizer.

There is a tax deduction for medical expenses, although it comes with parameters that prevent some taxpayers from using it.

For starters, you can only deduct health-care expenses that exceed 7.5% of your adjusted gross income.

Additionally, you’d need to itemize your deductions instead of taking the standard deduction, which for 2022 is $12,950 for individual tax filers and $25,900 for joint filers. In other words, that may be a high hurdle to clear.

“For many people, they’d need to have a lot of deductible expenses to be over that standard deduction, which is so high that many people don’t itemize anymore,” McClanahan said.

However, she said, if you are close to qualifying and have medical procedures or services planned for 2023, it may be worth doing them this year if you know you could write off the expenses.

“Just make sure it’s worthwhile,” she said.

Also, keep in mind that expenses covered by money from FSAs or health savings accounts (HSAs) — both of which already are tax-advantaged — is excluded from counting toward the deduction.

However, many other medical-related expenses do count, including copays, coinsurance, dental work, long-term care and travel costs for health care.

HSAs are similar to FSAs in that they let you save pretax money to use on medical costs. However, you can leave the money there for as long as you want.

“Dollars in an HSA are not use-it-or-lose-it and do not expire,” said CFP Kevin Brady, vice president and advisor at Wealthspire Advisors in New York.

That means whatever you sock away in an HSA — plus any growth if your money is invested — can sit there for as long as you want it to. Its gains grow tax-free, and as long as withdrawals are used for qualifying medical expenses, tapping those funds also comes with no tax.

These accounts are only used in conjunction with so-called high-deductible health plans. This year, the contribution limit is $3,650 for individual coverage and $7,300 for families. In 2023, the cap will be $3,850 for individuals and $7,750 for families. 

The more you can contribute, the lower your taxable income will be, whether you use the money on current health-care expenses or you let your balance grow.

If you have an HSA and haven’t maxed out on your annual contributions, you may have more time to get it done than you think.

“The contribution deadline is [always] through the tax filing date of the following year — mid-April,” Brady said.

For 2022 tax returns, the filing deadline is April 18, 2023.