Can I Deduct Medical Expenses When I File Taxes?

Yes, certain medical expenses can cut your tax bill, but you've got to reach this threshold first.

Q. I pay pre-tax premiums for health care to in my paycheck and I have a health savings account (HSA). Are there any medical expenses I can deduct?
— Trying to save

A. Health care costs can be a big line item in your budget. If you’re able to deduct some of the costs, it may take the sting out of it.

However, you can only deduct the amount of expenses that exceeds 10% of your adjusted gross income (AGI), said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield, New Jersey.

If you’re 65 or older, you have a lower threshold, Gobo said. The expenses only need to exceed 7.5% of your AGI for 2016. The senior exemption will go away in 2017.

Not every expense is deductible, but lots are.

Equipment, such as crutches, wheelchairs, artificial limbs and hearing aids are deductible, Gobo said. So are dental services, doctor’s appointments, nursing services and hospital services — as long as you haven’t been reimbursed for the cost by your health insurance company.

If you renovate your home because of a medical condition or disease you may be able to deduct the costs, Gobo said.

The key is that deductible expenses must be unreimbursed expenses.

“That means if you pay for an expense but get reimbursed by your insurance company or anyone else, you can’t claim that expense as if you paid for it,” Gobo said.

He said you can claim expenses the year you paid them or when they were charged if you used a credit card.

Also, if you pay medical expenses from your health savings account, you may not include these payments when considering your deductions.

“Make sure to keep any receipts from doctor visits and pharmacies, bank statements, and credit card statements showing where you paid for services, supplies, and any insurance premiums paid,” Gobo said. “Keeping track of your expenses will save time and headaches when filing your taxes.”

If you’re not sure, talk to your tax adviser or financial professional.

Wondering what else you can do to save some money on your taxes? Here’s 7 more ways to cut your tax bill.

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How to Pick the Right Healthcare Plan for You

Choosing medical coverage can be daunting. Here's how to select a healthcare plan.

Selecting a health insurance plan that works for your family can be an overwhelming task. However, there are four critical steps you can take to make certain that the plan is right for you and your family.

1. Network

Ever since managed care took over the health insurance industry in the 90s, insurance plan networks have become a critical part of selecting the “right” plan for you and your family. All of the major insurance companies offer online directories for finding medical providers. Those directories, however, can be very confusing. While you may find your physicians are contracted through your insurance company, you might be terribly disappointed when you schedule an appointment only to find that they are not on the sub-network that your plan utilizes.

Insurance companies normally have several different networks and your doctors may not belong to all of them. I have found that the simplest way to find out if your providers are on the network is to call their offices directly and provide the name of the insurance company and the name of the network you will be using. The other piece of information you will be able to glean is if your doctors will be participating in that network in the upcoming year. This will not usually be indicated on the insurance company’s website. Contracts between insurance companies and medical providers change constantly, and a network that includes your physicians this year may not include them next year.

2. Benefits

Many benefits that used to be optional are required to be included by the Affordable Care Act (a.k.a. the ACA, or Obamacare). For example, mental health benefits, maternity coverage and guaranteed coverage without pre-existing condition limitations are currently all mandated by law. These standardized benefits may not last if the ACA is partially or fully repealed.

While many benefits are standardized, benefit levels are not. There are typically three types of policy benefits you will need to consider when selecting a plan. It is very important to read the Summary of Benefits and Coverage for your selected plan before you make this important decision.

  • A deductible is the amount of money you must pay before any expenses will be covered by your insurance company. The deductible typically resets on January 1st of each year. So, if you have a $1,000 deductible, you will have to pay the first $1,000 of eligible expenses, and the insurance company will start paying a portion of the next expenses incurred in that calendar year (see co-insurance, below). Generally, the higher the deductible, the lower the premium. So if you want to save money on your monthly premiums, you can select a higher deductible. There may also be a separate per-stay deductible if you need hospitalization or go to the emergency room. Sometimes, the deductible will be waived and a smaller copay will be required upon each visit to the doctor. The amount of the co-pay will vary by plan. Typical co-pays range from $25 to $100 per visit.
  • Co-insurance is the split between what the insurance company pays and the expenses for which you are responsible after the deductible has been paid. You might select a plan that pays 80% of approved medical expenses after your deductible has been satisfied. You would then be responsible for the other 20% of expenses. A plan that only pays 50% of expenses (with you paying the other 50%) would generally cost less than the aforementioned 80%/20% plan. This sharing stops and the insurance company pays 100% of the remaining charges when you have reached the out-of-pocket maximum. This limit is expressed in a dollar amount and includes all of your deductible and co-insurance payments. A typical out-of-pocket maximum might be $4,000 per person, with an $8,000 family limit. So if you have a family of four and each had expenses of $2,000, the family limit would be reached even though no one person reached their individual limit.
  • The final benefit selection you will need to make is for prescription drug coverage. Some plans cover prescription drugs just like any other medical expense, subject to the deductible and co-insurance described above. Other plans might waive the deductible and co-insurance but require a separate co-pay each time you refill a prescription. Since name-brand drugs are more expensive, the co-pay is usually higher. Generic drugs, however, cost less so they enjoy a lower co-pay. Finally, there may be a separate prescription drug deductible, which must be satisfied before any co-pay applies.

3. Insurance Company

The strength of the insurance company backing the policy you choose is just as important as the network or benefits selected. There is a misconception that Obamacare is an insurance policy backed by the government. Each policy is still underwritten by an insurance company, not the federal government. Since claims are paid by the insurance companies, you should check out the financial strength of the company. Several rating agencies evaluate the financial strength of insurers, including Moody’s, A. M. Best and Fitch Ratings. Look for companies with an “A” or better rating from all three rating agencies. (You can check your own credit rating for free by viewing your free credit report snapshot, updated every 14 days, on Credit.com.)

4. Premiums

The premium is the monthly amount paid to the insurance company in return for the policy benefits purchased. All of the factors discussed above will work together to determine the premium required for your insurance coverage. And while your health, medical history or gender can’t affect your premium, a few other factors can. Premiums increase with age and as family members are added to the plan. Premiums can also vary widely based upon where you live in the country or even within your own state. Rates are determined, in part, by the medical expenses in your particular zip code. The insurance company can also charge more if you use tobacco.

While deciding on the correct medical insurance plan can be tedious, balancing these four critical details can help you make an informed and appropriate selection.

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