Morton S. Winer, CPA


9933 North Lawler Avenue Suite 410, Skokie, IL 60077-3703


Phone: 847-676-8900 



September 2018

Pay Healthcare Costs With Pre-Tax Dollars

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We all know health insurance costs are growing, but do you realize by how much? According to the Peterson-Kaiser Health Tracker, healthcare costs rose 21.6% while general inflation grew 7.3% since the end of 2007. With no end to rising healthcare costs in sight, Health Savings Accounts (HSAs) can help mitigate some of the pain.

How expensive is expensive? In 2017, employer-provided family healthcare coverage averaged $18,764. Beyond premiums, healthcare costs that include deductibles, coinsurance and co-pays can run thousands of dollars more each year.

In retirement, rising costs can be devastating if you don’t have a plan to keep pace. One survey of such costs estimates an average couple retiring at age 65 in 2018 will need $280,000 in today's dollars for medical expenses in retirement. Clearly, retirees will feel the squeeze.

An HSA can help lessen the pain of healthcare costs. You make contributions to an HSA pre-tax. Earnings potentially build tax-deferred and withdrawals made for qualified medical expenses are tax-free. In effect, an HSA is triple tax-free. Qualified expenses include deductibles, coinsurance and other out-of-pocket costs.

You need a high deductible health plan (HDHP) to qualify for an HSA (see adjoining article for limits). While you’ll owe a penalty and income tax on the amount of HSA withdrawals used for nonqualified expenses before age 65, you can take penalty-free withdrawals for any reason once reaching age 65 and pay tax on the amount of nonqualified distributions.

Many employers contribute to or match a portion of employees’ HSA contributions, so make sure you take advantage of this if it applies to you. Also know that you can’t have a medical Flexible Savings Account (FSA) with an HSA, but you can have a special FSA that pays for dental and eye care.


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