Reducing the Cost of Healthcare

Posted On May 26, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /  

The Tax bill passed in December eliminated the individual mandate requiring consumers to have health insurance or pay a tax penalty, starting in 2019. As healthy individuals drop their insurance, it is expected that premiums will rise by an average of 20% next year for individual plans on the insurance exchange. As prices rise, this creates a negative feedback loop where more healthy people cannot afford insurance, the insurance pool becomes worse for insurers, and premiums increase again.

As a result, more consumers are adopting higher deductibles and pay for more of their care out of pocket. Health Insurance will shift from being used for every appointment to being catastrophic coverage where you will only have claims in rare years. Think of your auto insurance – you don’t expect it to pay for oil changes, only when you have a wreck.

This will shift the burden of cost-savings to the consumer rather than the insurer. Unfortunately, doctors offices and hospitals are terrible at sharing price information with patients, so it’s extremely difficult to know how much something will cost at one office, let alone be able to determine if you could save money by going elsewhere.

Cost transparency is the only thing that is going to save our health system from continuing to escalate out of control. We have a fee for service system which encourages for-profit hospitals to charge as much as they can and to add on extra tests, services, and procedures to increase their bills. And it’s not easy being a doctor, where every patient wants a quick-fix (other than eat right, exercise, and take care of your body in advance). With the risk of malpractice claims, doctors order extra tests to cover themselves even if the actual need for those tests is small. That’s called “Defensive Medicine”, and it’s not about defending the patient.

At a conference I attended last week, a Doctor turned financial advisor presented information on how to save money on your health care. Here are nine tips:

1. In-Network. Don’t ask a doctor if they take your insurance, ask “Are you in my network?”. Write down who you spoke with and the date and time. Later, if you get a bill that shows out-of-network charges, you can contest that with the evidence of what you were told. In fact many doctors offices record their calls, and you can demand to listen to your call.

2. PPOs used to offer choice of going anywhere, but networks are often very narrow for small plans. A cheap plan usually means that very few doctors are in that network. You have to ask at each step. If you have a planned hospital procedure, get a signed estimate in advance, and write on your paperwork: “I will only allow in-network care.” Otherwise, you may find out that some of your care is out of network even when you are at an in-network hospital!

3. Balance Billing. If you are out of network, you may be billed for the difference between the in-network price and what the hospital wants to charge you. For example, in Texas, insurance will pay up to $12,668 for an Appendectomy, but the average hospital bill is $40,893. So when you get an outrageous bill, you can find out this information to negotiate a lower price. This information is published by the Texas Department of Insurance Healthcare Costs Guide.

4. If you go to an in-network hospital and receive charges from an out-of network provider for over $500, you have the right to seek Medical Bill Mediation again through the Texas Department of Insurance. They have been able to lower these bills in 90% of the cases submitted to the state.

5. Reduce unnecessary tests and medications. The vast majority of a doctor’s diagnosis comes through patient history and the physical examination. Doctors today have to see a large number of patients and are in a hurry, so they often default to ordering expensive tests to save time. Before going to an appointment, type up your symptoms, medical history, medications, and diet. Write down the questions you have. Print three copies. Mail one in advance. Give one copy to the receptionist when you arrive. And if the doctor walks in without it, give them the third copy.

If they want to order additional testing, ask: What do you hope to learn from this test? How will the results of this test change the approach to treatment? If they are going to prescribe medicine, ask how long you will take the medicine. What are the benefits, side effects, and risks? What alternatives (i.e. lifestyle) are there to this medicine?

6. Independent Practice or Hospital. Hospitals are buying up doctors offices in their area and raising prices. Where a doctor might charge $100 for an office visit, a hospital can charge $250. Ask if an office is an independent practice or part of a hospital.

7. Ask your pharmacist if there are generics or less expensive substitutes for your medicines. Doctors are not always aware of the price of the medicines they prescribe.

8. If you hit your deductible during the year, try to take advantage of the fact that insurance has kicked in. Fill your prescriptions in December for the year ahead. Complete any tests that you should have done. If you’ve put off knee surgery or other procedures, try to get those done as well.

9. If you have a High Deductible Health Plan, fund your Health Savings Account (HSA), so you can pay your co-pays, deductible, prescriptions, and other costs with pre-tax money. That’s like saving 12-37% on every dollar you spend.

If you don’t have an HSA, but your employer offers a Flexible Spending Account (FSA), that will also allow you to pay medical bills with pre-tax money. Just remember that unlike an HSA, FSA is use it or lose it – money not spent before December 31 is forfeited.

Healthcare costs have increased by 7.76% a year since 1970. The US spends about 19% our GDP on healthcare each year, significantly more than any other nation. Even countries which guarantee healthcare for everyone only spend 11-13% of their GDP. We have a broken system but seem unwilling to learn from what works in other parts of the world.

The trend will continue: to reduce insurance claims, more expenses will be shifted to the consumer. Capitalism works to bring down costs, but it requires that consumers have price transparency, something which doctors and hospitals have been unwilling to do. They should publish their prices and post prices on their website. Today, we have to ask and be our own advocate to keep healthcare costs down.

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Can You Contribute to an HSA After 65? (Updated for 2026)

Posted On November 12, 2017 By Scott Stratton, CFP(R), CFA In Retirement Planning /  

Bottom Line: You cannot make new contributions to a Health Savings Account (HSA) once you’re enrolled in Medicare (any part). But you can continue to use the funds you’ve already accumulated, and you gain additional flexibility in how distributions are treated after age 65.

Overview: HSA Eligibility and Medicare

A Health Savings Account (HSA) gives triple tax benefits — deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses — but you must be covered by a qualifying High Deductible Health Plan (HDHP) and not have disqualifying coverage (like Medicare) to contribute.

Once you enroll in Medicare (Part A, B, C, or D), contributions stop because Medicare is no longer an HDHP and therefore disqualifies you from making further HSA contributions.

➡️ Many people receive Medicare Part A automatically when they start Social Security benefits at age 65, which also ends eligibility to contribute.

Can You Contribute While Working Past 65?

If you are still working past age 65 and are enrolled in an HDHP that qualifies for an HSA and you haven’t enrolled in Medicare, you can continue contributing. The key conditions are:

  • You remain covered under an HDHP;
  • You’re not enrolled in any part of Medicare; and
  • You otherwise meet IRS eligibility rules.

Many retirees choose to delay Medicare enrollment (and sometimes Social Security) so they can continue making HSA contributions for a short period — but this requires careful coordination with benefits and tax rules.

What Happens If You Contribute After You Enroll in Medicare?

If you contribute to your HSA after Medicare coverage begins, those contributions are considered ineligible and cause an excess contribution, which can trigger:

  • A 6% excise tax on the excess amount for each year it remains in the HSA; and
  • The requirement to withdraw the excess amount (plus earnings) to avoid further penalties.

This means careful planning is important if you’re close to Medicare age or delaying enrollment.

How Much Can You Contribute the Year You Turn 65?

In the year you reach age 65 and enroll in Medicare:

  • Your annual HSA contribution limit may be prorated based on the number of months you were eligible under an HDHP before Medicare coverage began.
  • Delaying Medicare enrollment can affect your eligible months.

Always confirm contribution limits with your plan administrator and consider tax implications when planning contributions around the year of Medicare enrollment.

Using HSA Funds After 65

While you can’t contribute after Medicare enrollment, your existing HSA assets remain yours and may be used:

  • Tax-free for qualified medical expenses, including deductibles, co-pays, prescription drugs, vision and dental care. Additionally, you can use your HSA to reimburse Medicare Parts B and D premiums and Medicare Advantage costs;
  • For non-medical expenses after age 65 without the usual 20% penalty (but such withdrawals are taxable like distributions from a traditional IRA). This should be avoided, if possible.

This makes an HSA a flexible part of retirement expense planning.

Planning Considerations for Retirees

Before age 65, an HSA can be an efficient way to build tax-advantaged savings for future healthcare needs. Once you’re approaching Medicare eligibility:

  • Coordinate your HDHP coverage, Social Security timing, and Medicare enrollment;
  • Understand proration rules for your final year of HSA eligibility; and
  • Be mindful of potential tax penalties for excess contributions.

Many retirees find HSA coordination fits into broader decisions about retirement income sequencing and tax planning — see our guide on Retirement Tax Planning for related context.

Related Resources

Frequently Asked Questions (Retiree Focused)

Q: Can I still use my HSA to pay Medicare premiums?
Yes. After age 65, you can use your existing HSA funds to pay for qualified medical expenses, which include many Medicare premiums (Part B, Part D, Medicare Advantage).

Q: Is there any penalty if I withdraw HSA funds for non-medical expenses after age 65?
No penalty applies after age 65, but withdrawals for non-medical expenses are taxable as ordinary income.

Q: What if I delay enrolling in Medicare to keep contributing to my HSA?
You may remain HSA-eligible if you delay Medicare enrollment and maintain HDHP coverage — but retroactive Medicare coverage (up to six months) can catch you if you later enroll, making careful timing essential.

Q: Does enrolling in just Medicare Part A trigger the contribution restriction?
Yes. Enrollment in any part of Medicare — including Part A — ends your eligibility to contribute to an HSA.

If you’re approaching Medicare eligibility or are already managing multiple sources of retirement income, coordinating HSA rules, tax timing, and Medicare decisions can make a meaningful difference in your long-term planning. If you’d like a second look at your situation from a planning-first perspective, consider scheduling a conversation: Request an Introductory Conversation.

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Five Ways To Invest Tax-Free

Posted On February 29, 2016 By Admin In Financial Planning /  

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“It doesn’t matter how much you make, but how much you keep.” Over time, taxes can be a significant drag on returns, especially for those who are in the higher tax brackets. Today, many families are also hit with the 3.8% Medicare surtax on investment income. If you are in the top tax bracket, you could be paying as much as 43.4% (39.6% plus the 3.8% Medicare surtax) for interest income or short-term capital gains.

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Health Savings Accounts: 220,000 Reasons Why You Need One

Posted On August 11, 2014 By Admin In Retirement Planning /   2 Comments

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The Health Savings Account (HSA) is one of the best savings vehicles, yet remains underutilized by many investors. Used properly, you can get a tax deduction for your contributions, like a Traditional IRA, and be able to take your money out tax-free, like a Roth IRA. No other account has this remarkable benefit! And that’s why I’ve been telling clients about the HSA every chance I get, as well as contributing the maximum to my own HSA for the past 8 years.

Most people know that you can use your HSA to pay for co-pays, deductibles, prescriptions and other medical expenses not covered by your health insurance, including expenses for dental and vision care. But fewer people are aware of some of the longer-term benefits of an HSA which make it a very attractive tool to help fund your retirement.

In addition to IRS-qualified medical expenses, after age 65, you can take tax-free withdrawals from your HSA to pay for Medicare premiums for parts A, B, D, and a Medicare HMA. You can also use your HSA to pay for long-term care insurance premiums. If you’re still working after age 65, you can even use your HSA to pay (or reimburse) the employee costs of your employer health plan.

But why do you need an HSA? According to a 2014 study by Fidelity, the estimated cost of health care for a 65-year old couple is $220,000 in today’s dollars. This is the amount not covered by Medicare, and by the way, assumes zero nursing home expenses. Having tax-free dollars available in an HSA can fund these costs while helping retirees reduce their need for withdrawals from taxable sources such as their 401(k) or IRA to pay for medical expenses or insurance premiums.

If you are healthy today, you might not be thinking about an HSA, but it is still a valuable idea to accumulate pre-tax dollars in your HSA now to pay for your health insurance or LTC premiums in retirement. Many families were familiar with Flexible Spending Accounts, which were “use it or lose it”, so when HSAs became available, a lot of participants were still in the mode of contributing only their expected annual expenses. HSAs have no expiration date on contributions, yet I still hear some people say that they “don’t want to have too much money in their HSA”.

Prior to age 65, there is a 20% penalty for non-qualified withdrawals from an HSA. After age 65, the penalty is waived, but you will have to pay tax on any withdrawal for a non-qualified expense. It would obviously be preferable to take a tax-free withdrawal for a qualified expense, but if you were to need the funds for other purposes, then the account would be treated the same as a 401(k) or Traditional IRA. And that’s still a benefit, because you had an upfront tax-deduction followed by years of tax deferred growth. Unlike a Traditional IRA, however, there are no income restrictions on contributing to an HSA, so this is a tax deduction that many high income families miss. And there are no Required Minimum Distributions on an HSA.

The only negative is that the contribution limits are relatively low. For 2014, the maximum contribution is $3,300 for a single plan or $6,550 for a family plan. Account holders who are over age 55 but not enrolled in Medicare can contribute an additional $1,000 catch-up. Once you’re enrolled in Medicare (Part A or B), you are ineligible to fund an HSA. Not all high deductible health plans are HSA eligible, so please do not open an HSA until you have confirmed you can participate.

A high deductible plan is generally a good deal if you have few medical and prescription expenses and primarily want coverage in case of a major illness. On the other hand, if you have a lot of on going medical bills for your family, a high deductible plan may be more expensive if you will hit the annual out of pocket maximum each year.

Given the significant size of medical expenses in retirement, the high inflation rate of medical care, and the troubling state of future Medicare funding, starting an HSA early makes sense. Looking at the remarkable long-term tax benefits of an HSA, I suggest clients consider an HSA on equal ground with funding a Roth or Traditional IRA.

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