How to Pay Yourself Back For Last Year’s Medical Bills

It’s tax season and time to put your finances and paperwork in order for the last tax year. This blog post will review what kind of health care expenses you can receive tax deductions on, ways to lower your medical bills to nearly zero with supplemental health insurance and how contributions to a health savings account can actually save you money.

Reduce Your Medical Deductible to Zero With Supplemental Health Insurance

Supplemental insurance covers the gap families experience from their first medical bill until their insurance deductible is met (or family household share for those participating in a Sharing Health Ministry program like Medi-Share). So why is this type of insurance important to help supplement income? Employees are shouldering more of the cost of health insurance premiums each month compared to just 10 years ago. And they are shouldering more responsibility for their health care in the form of deductibles, copays and coinsurance. In fact, the average family with a high deductible health plan through their employer pays more than $4,300 out-of-pocket before their health insurance company is responsible for paying the bills. Self-employed individuals and families can pay even higher deductibles. This is in addition to the cost of monthly premiums. Supplemental health insurance can help take away the mental burden of having to pay for thousands of dollars of medical care should an unexpected accident or critical illness arise, bringing a high deductible from a “zing” to a zero.

Health Insurance Deductions for the Self-Employed

If you are self-employed, you can get deductions on several insurance premiums. This is a long-time fact. Congress approved a 25 percent deduction for self-employed health insurance premiums in 1987. In 2003 health premiums became 100 percent deductible with the passage of the Self-Employed Health Insurance Tax Deduction. This deduction stipulates you can reduce your adjusted gross income by the amount you pay in monthly premiums on medical insurance, dental insurance, COBRA and qualified long-term care insurance for yourself, your spouse, and all of your dependents. This puts money back in your pocket for taking the time to itemize these deductions on your taxes.

Health Savings Accounts

Depositing money into a health savings account (HSA) is like giving yourself a raise at every pay period. Money deposited into an HSA can be done tax-free, and withdrawals in any amount are not subject to any penalty. For the self-employed, tax deductions for contributions made by the account holder can be deducted at tax time, even if the expenses are not itemized on Schedule A of your filing. Any deposits made by an employer are also tax-free and don’t need to be claimed as income.

You can still make contributions to your HSA for 2016 until April 18, 2017. If you fail to be eligible during 2016, you can still make contributions, up until April 18, 2017, for the months you were an eligible individual or family household. If you have an HSA through work, your employer can follow the same rules as long as they indicate that payments funding your account are for 2016.

Qualifying HSA Medical Expenses

There are many medical and over-the-counter expenses that can be used by your health savings account dollars. Some examples of qualifying HSA deductions include:

  • Acupuncture
  • Alcoholism
  • Artificial Limb
  • Artificial Teeth
  • Bandages
  • Birth Control Pills
  • Braille Books and Magazines
  • Breast Pumps and Supplies
  • Chiropractor
  • Contact Lenses
  • Crutches
  • Dental Treatment
  • Disabled Dependent Care Expenses
  • Drug Addiction
  • Eye Exam
  • Eyeglasses
  • Fertility Enhancement
  • Guide Dog or Other Service Animal
  • Hearing Aids
  • Home Care
  • Hospital Services
  • Insurance Premiums
  • Lead-Based Paint Removal
  • Long-Term Care
  • Medical Expenses
  • Nursing Home
  • Nursing Services
  • Optometrist
  • Oxygen
  • Prescription Medication
  • Prosthesis
  • Psychiatric Care
  • Psychoanalysis
  • Psychologist
  • Special Home for Intellectually and Developmentally Disabled
  • Stop-Smoking Programs
  • Therapy
  • Transplants
  • Vasectomy
  • Vision Correction Surgery
  • Weight-Loss Program
  • Wheelchair
  • X-ray

Special Note About Deductible Medical Expenses

If you’re taking your health insurance as a medical-expense deduction on Schedule A, you can deduct only those medical expenses that exceed 10 percent of your adjusted gross income.
Starting in 2017 (for tax returns filed in early 2018), all filers are limited to deducting only medical expenses that are in excess of 10 percent of their annual gross income, which can be a hard target to hit unless you’re dealing with a significant illness or injury.

Make Sure You Pay Yourself Back

Take time to analyze whether supplemental health insurance could make your insurance portfolio more robust, pay yourself back for 2016, and start calculating your deductions for 2017! There are many ways to put money back in your pocket when buying and using medical services.

For more information about supplemental insurance from HealthValues, read our online stories about how members save, or call 888-635-0292.