Ideas to tame healthcare costs
Q: I just got hit with another big medical bill. I can’t seem to get ahead. Is there any way to reduce my cost of health care?
A: If you are feeling frustrated by the rising cost of healthcare (and who isn’t), here are five things you can do to make sure you get the most for your precious health care dollar. These ideas come from Carolyn McClanahan, a financial planner in Jacksonville Florida who also happens to be a family practice medical doctor. I’m not sure they address your specific frustration, but you may find the ideas helpful.
- If your employer pays health insurance premiums for you but not your family, a little research could save you money. Sometimes separate coverage for your family will be cheaper on the individual market, especially if your family is young and healthy.
- Take full advantage of your health savings account (HSA). HSAs are used in conjunction with high-deductible health insurance policies. Fully-funding an HSA is a great way to get some tax savings and accumulate savings for later health care needs.
- Be careful with COBRA coverage. COBRA allows you to keep your medical coverage in the event you lose your healthcare coverage because of job loss, death or divorce. However, COBRA rates are usually very expensive because you have to pay your portion and the former employer’s portion of the monthly premium. Before you make the decision to go with COBRA, compare it with the cost of short-term coverage or individual coverage. Once COBRA is selected, you are locked in until you get another job, or COBRA runs out or the next annual open enrollment season (November 1 through December 15) arrives.
- As you compare individual plans, take time to look closely at their provider networks. Plans with narrower networks might look cheaper on paper, but you could find yourself paying steep out-of-plan rates or being forced to switch doctors.
- Communicate openly with your doctor that money is an issue. Doctors often think more about patient care and less about patient cost. If your doctor orders a test, ask what the doctor hopes to learn. If he can’t clearly explain it, maybe you don’t need the test. If your doctor writes a prescription, see if a generic form of the drug is available. Even better, ask if anything can be done other than medication. Sometimes lifestyle changes can have great effect on improving medical conditions.
Q: I thought the new tax law allowed me to pay for my son’s private school tuition with distributions from my 529 plan. Now I’m hearing that my distribution is going to be taxed by California. Can they do that?
A: You are correct. The new federal tax law allows up to $10,000 each year in distributions from 529 plans to pay for K-12 tuition at private and parochial schools. These distributions are free from federal tax. However, states set their own tax rules and the California Franchise Tax Board has “determined that current California State tax law does not conform to the new federal tax treatment.” Hence, California will tax the distributions. Note that this applies to withdrawals from any 529 plan by a California taxpayer—not just participants in California’s ScholarShare 529 plan.
Other states are following suit including Oregon, Michigan, Montana, New Jersey and Vermont. Oregon is taking it a step further and will reclaim part of the state tax deduction they granted to Oregon taxpayers for putting money into the 529 plan.
It remains to be seen if California’s state legislature will pass a law to bring the California code in line with the federal tax treatment. However, given the political interests involved, I wouldn’t hold my breath.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to: firstname.lastname@example.org