At KLS Financial, the majority of accounts that come across our desks concern medical debt, and unsurprisingly so – medical debt is undoubtedly one of the most common forms of debt, affecting a huge variety of consumers at every walk of life and in every financial situation. Whether you find yourself on the receiving end of a large statement for an unexpected injury or illness, providing for the needs of a family member, or if you’ve simply let a bill slip through the cracks, medical expenses can wreak serious havoc on your bank account. Whatever portion of treatment you are responsible for after your insurance has paid their part can be very difficult to deal with in one go, and you may be unable to set up a long-term payment plan with your healthcare facility. Once an account reaches KLS, our representatives do their very best to help consumers pare down bills as painlessly as possible, but there are also quite a few ways to deal with said bills before they ever end up in the hands of a collection agency. Today, let’s discuss one of these many options: health savings accounts.
First, let’s examine some of the most basic questions you may have about what an HSA is and what it does. An HSA allows you to set aside money into a tax-advantaged (meaning, in this case, tax free) savings account to allocate towards the medical expenditures of your choosing. In addition to enabling you to pay off medical bills, funds in a health savings account can be applied towards any health-related costs you may incur, including prescription and over-the-counter drugs, office visits, eye exams, and even personal health products like contact lens solution and vitamin supplements. In order to qualify for an HSA, you must be enrolled in a high-deductible health plan, or HDHP. As discussed in one of our previous blog posts, your insurance deductible is the amount of money that you must pay out of pocket before your insurance begins to cover services at 100%. While an HDHP does require you to pay a higher deductible, your monthly premiums will also be lower, and you have the unique opportunity to apportion money towards the aforementioned health savings account for you and your loved ones medical needs.
HSAs are an excellent option to utilize when you find yourself faced with a large amount of medical bills that you do not necessarily want to pay off by dipping into your emergency savings. The money in an HSA functions as something of a cushion – you are able to build a monetary fund with which medical expenses may be relieved while largely maintaining your current financial standing. In general, you have two options by which to put money into an HSA: you may either deposit funds as you choose and claim them as deductions come tax season, or you contribute directly with each paycheck through a payroll deduction. Another benefit of health saving accounts comes from the fact that your income is only taxed post-contribution. For example, if you earn $36,000.00 a year and contribute $2,000.00 towards your HSA, you will be taxed on the basis of a $34,000.00 salary. Additionally, any money left over in your HSA at the end of the year will roll over to the next, enabling you to continue building your medical safety net for any and all future health expenses.
As they relate to debt collections, health savings accounts can also provide you with an advantage in maintaining your credit score. The ability to pay off a medical debt in full before your credit score is affected is an incontestably invaluable option to the vast majority of consumers. While it may seem difficult to believe that a collection agency would prefer for you to handle your bills before they reach our office, we can assure you that it’s the truth! We at KLS want everyone, consumers or not, to be fully equipped with the knowledge and ability to cultivate a healthy financial standing, and HSAs can be a wonderful tool in your arsenal against indebtedness. Be sure to check in with us next week as we continue our quest through the ABCs of financial literacy!