HSAs and medical emergencies

Part of being human is the belief that we're invincible - right up until something breaks. Even in old age, it just never seems likely that we'll experience a medical emergency. But as likely or unlikely as that might be, everyone can benefit from putting more aside for their health.

Be proactive with your debts

If you get stuck with thousands of dollars in medical bills after a few nights in the ER, don't panic when you see the amount you owe. After submitting the claim to your insurance, you can negotiate the bill with the hospital. Medical institutions are generally pretty amenable to haggling on out-of-pocket expenses, so there's no harm in trying.

Provide a few reasons why you believe you deserve a lower rate, or, at the very least, you can ask for a more manageable payment plan. They'll likely compromise and offer a more forgiving pay structure than push you into bankruptcy. In the first scenario they get a large portion of the money they're owed - in the second scenario they get nothing.

Let's say you have an emergency appendectomy which costs $3,000 after your insurance has paid their portion. You request financial assistance, and the hospital drops the bill to $2,000, which they let you pay in $50 monthly installments.

Instead of paying $50 to the hospital from your bank account or credit card, use your HSA to make those payments. You'll be eligible to take a tax deduction because of those HSA contributions, which will lower how much you'll owe in taxes.

If you can afford to pay that $2,000 all at once, you should still utilize the tax benefits of your HSA. Make a $2,000 transfer from your bank account to your HSA and use the latter to pay the bill.

Sometimes, you need to be a little crafty

Let's look at another scenario: You break your leg hiking and go to the hospital, where you get an x-ray and see an orthopedic specialist.

The bill is $50,000, and your part after insurance is $6,000. Fortunately, you have a $6,000 emergency fund put aside in a savings account. You plan to transfer the money to your HSA in order to get the tax break. But there's a snag -- the 2019 maximum annual contribution for an HSA is only $3,500. If you transfer the full $6,000, you'll pay a 6% tax on the extra money.

Here's what you can do instead:

  • Set up a payment plan with the hospital and try to extend your payment window as long as possible.
  • Transfer $3,500 to your HSA for this calendar year and use it to pay your monthly hospital bill.
  • As soon as the new year hits, the clock resets on your HSA contributions and you can transfer the remaining amount to your HSA. By extending the payments to cover two years, you reap the full tax rewards that come with an HSA.

The best way to pay for medical emergencies with an HSA is to contribute a set amount each month. Doing so consistently will leave you with a nice safety net for the next time something unexpected happens.

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