Money Rehab with Nicole Lapin - How To Save $ On Health Insurance and Medical Bills

Episode Date: December 1, 2023

Today Nicole gives you the playbook for major savings when it comes to health insurance and medical bills. Plus, she decodes some of the common alphabet soup in health insurance (HSAs, FSAs, WTF?).

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. It is open enrollment season, and to celebrate, we're going to get you some dope health care perks. Today, I'm going to focus on the types of accounts that can be used to pay for your medical bills. And there are two of the alphabet soup type acronyms that I get the

most questions about. The accounts are flexible savings accounts or FSAs and health savings accounts or HSAs. But before we get into these accounts, I'm actually going to throw a little bit more alphabet soup at you because there's another acronym you need to know, an HRA or healthcare reimbursement account. This type of account is offered by some employers as part of the company's group healthcare plan. So WTF is an HRA. An HRA is a type of account funded by your employer and created to pay for medical expenses and insurance premiums.

Since the account is funded by your employer and tied to your health care plan directly, you don't actually own it. So if you quit your job, the money stays with your employer. It can be used with an FSA and sometimes it can be used with an HSA. And yes, up next, I'm going to define those terms. But just know that generally you're not going to have all three of these types of accounts. And there are some specific rules about how the coverage works. And HRA is an awesome perk if you have it, especially if your employer generously

funds it. And I love that for you. But you either have it or you don't. So let's move on to the accounts that you have a little bit more control over. FSAs and HSAs. I'm going to say it for the people in the back. FSAs stand for Flexible Spending Account, while HSA stands for Health Savings Account. Here is the big picture. Both of these accounts hold a chunk of money that's dedicated to pay your medical expenses. The reason these accounts are worth having is because they come with some awesome tax benefits. I'll get into those benefits in just a moment. But because right now we're talking high level, just know that it's estimated

you can save around 30% on medical purchases through FSAs or HSAs. And by medical purchases, I actually mean, yes, any expenses related to a hospital visit would fall under that category, but also to be honest, there's a lot of stuff in your bathroom that's probably eligible. Sunscreen, allergy medicine, chapstick, all eligible. While FSAs and HSAs do have those perks in common, they are fundamentally different. You can't open an FSA solo like you can a savings account at your bank. FSAs are only offered by employers, and the employer can choose to help fund it, but honestly, they generally don't. You can get an FSA regardless of what type of health care plan you have. You can think of it

as a service your employer is offering. The FSA is held by your employer or a third party that the employer picks, and you basically submit any claims to that entity. The money you have in your FSA doesn't necessarily roll over year to year. Your employer can choose to have it rolled over or give you a grace period in which to spend the money in the account. But usually you need to spend all of it on qualifying medical expenses by the end of the year. In other words, this is the use it or lose it type of account. I remember the difference between FSA and HSA as the FSA being your EFT if you do not spend it that year.

Now, the biggest perk of it being held by your employer is that while you pay into it out of every single paycheck, all of the funds you would have for the entire year are available immediately. Basically, you have an interest-free line of credit for medical expenses from your boss. An HSA is very different. An HSA is tied to the type of health care plan you have. Specifically, HSAs are always partnered with high deductible health care plans. So if you're self-employed, you can totally scoop up one of these plans. You can open up an HSA. And since it's tied to

your plan, not to your employer, the funds in your HSA are yours to keep forever and ever. Even if you switch plans, that is still your money. Here's another fun fact. The money in your HSA can be invested. I actually did a deep dive into this on a recent episode that I linked in the show notes, but as a sneak preview, if you haven't listened to it yet, the fact that you can invest the money in your HSA gives you the potential to earn returns on the money and build wealth beyond just saving that money. Plus, HSAs can function as medical emergency funds. You aren't required to take the money out when you have a medical expense.

So if you have an expense that comes up, you can pay for it out of pocket, save the receipt, and then use the receipt to take the money out when you need it. But HSAs take on their final beautiful form when you hit 65. Then you can withdraw money from your HSA for any reason whatsoever. Qualifying medical expenses and withdrawals with old receipts can be tax-free.

Other withdrawals will be taxed as income, but this is basically making this account a little spare IRA of sorts. Having a high-deductible health care plan can seem really scary, but not having an emergency fund or enough money saved for retirement is doubly scary. This one account can give you both of those things. And just to get a little granular here, like FSAs, HSAs can be funded with pre-tax money, but you can also set up your HSA so that it's funded with net income and those contributions become tax deductible. Tax deductions give you credits, of course, toward your total tax bill,

and that's why these accounts are gorgeous. You can save big bucks on some of the biggest costs you'll have. Healthcare, childcare, and nursing home care. Aside from remembering it as the F being the one you're F'd if you don't use that year. I also think of it this way. The F in FSA stands for friend zone. You can have a good time together, but it's not yours forever. And the H in HSA stands for to have and to hold. So it's till death do you part.

Now, when you hear the differences, you might be thinking, what is the point of an FSA if I can't even keep the money lapping? The answer is one of the most powerful and important factors in finance, and I think you've guessed it, it is taxes. It is always taxes. Reducing the total amount of money that you get taxed on is one of the best ways to put more money back in your pocket. And if you're wondering, yes, you can have both, if the FSA is a limited use FSA or dependent FSA. Limited-use FSAs are only to be used for expenses not covered by your health insurance, like vision and dental, and dependent

FSAs contain funds to be used for child care or adult dependent care, such as adult day care for memory care. Because of the tax benefits, this one little account can offer some really big savings on your child care bill. For today's tip, you can take straight to the bank. We talked about how dependent care FSAs can be used for child care while you work or you go to school. This includes daycare, preschools, after-school care, and day camps. If you don't qualify for a dependent care FSA, you can still save a little bit of money by taking the Child and Dependent Care Tax Credit when you file your taxes. This can give you a tax credit of up to 35% of child care or dependent care costs. So be sure to get the proper paperwork from your

child care or daycare provider so that you don't lose out on this money. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.