For Mark Roberts’ Use: What would you do if you encountered high medical bills due to an accident or serious illness? If you’re like almost 90 percent of middle-income Americans, you may be forced to dip into your retirement savings. Since it’s generally a bad idea to take early withdrawals from a retirement savings account, it’s best to come up with another plan to cover unexpected medical bills.

High out-of-pocket medical expenses are something we don’t often think about. Either we take our good health for granted, or we have faith that our medical insurance will adequately cover our bills. But even if you have medical insurance, your portion of the bills can be staggering. In 2013, the average out-of-pocket healthcare costs for a typical family of four totaled 9,144 dollars. Since that is only an average expenditure, just imagine how high your bills could be if you someday face a serious illness or injury.

One strategy that may help you to offset your medical bills is to combine a high-deductible medical insurance plan with a health savings account. The trade-off associated with a high-deductible insurance plan is lower premiums. However, if you’re enrolled in a high-deductible health insurance plan, then you’re eligible to contribute to a health savings account (HSA). This tax-advantaged savings account is then used to pay future medical bills.

Typically, you will make contributions to your HSA through payroll deductions, but you can also make direct payments to the HSA provider in most cases. You won’t have to pay federal income tax on money withdrawn from your HSA, as long as the funds are used to pay for qualified medical expenses.

If you don’t use all of the funds in your HSA, the money can accumulate and be used to pay medical bills in future years. This is usually true even if you retire or change jobs. You can’t use these funds to pay for future health insurance premiums, but the money can be used to cover Medicare premiums and the cost of long-term care.

If you’re looking for a way to protect yourself from high medical bills, a health savings account may be right for you. Call the human resources department at your company, or talk to your health insurance provider directly to find out if this option is available to you.


1) AdvisorOne, May 8, 2013
2) Milliman, 2013