Figuring Out Your Health Care Costs
Most of us spend money on health care in many different places -- pharmacies, medical and dental offices, grocery stores that sell over-the-counter medications, and elsewhere. So it can be a challenge to figure out what you’re paying for-- everything from prescriptions and copays to special equipment for a chronic condition. But motivating yourself to track your health care costs can have benefits all year long.
The benefits of knowing your health care costs
Most Americans spend at least 10 percent of their income on health care, and some spend far more. If you know where that money goes in your household, you can:
- Claim tax deductions. You can claim medical expenses that exceed 7.5 percent of your adjusted gross income as deductions on your federal income tax return. If you have employer-sponsored health insurance and are healthy, you may not spend enough to qualify for those deductions. But that could change quickly if you or a family member requires hospitalization or develops a chronic condition. And you’ll need a record of how much you spent to claim your deductions.
- Take advantage of Flexible Spending Accounts. Every year you can put part of your income into a savings account known as a Flexible Spending Account (FSA). Use your FSA later to pay for hundreds of medical or dental expenses not covered by your health plan, such as copays, deductibles, glasses or contact lenses, and out-of-network care. But you’ll lose the money if you don’t spend it in the year you intended, so you need to know your heath care costs to get the full benefits of an FSA.
- Protect yourself against billing errors. About 30 to 40 percent of medical bills contain errors, studies at the University of Minnesota have found, and other researchers say that the rate may be as high as 80 percent. In order to get reimbursed if you were overcharged for care, you’ll need to track your costs and keep good records of what you paid so you can provide proof that you overpaid.
Tips on figuring out your health care costs
The most important part of figuring out your health care costs is creating a reliable system for tracking them, so you’ll be able to calculate the totals easily. Here are tips:
- Make a list of all of your categories of health care expenses. Your categories might include copays, deductibles, dental care, vision expenses, counseling or other therapies, medical equipment or supplies, and special assistance needed for disabilities, such as home care. Make a folder for each category, and make a habit of putting your receipts or proof of payment into the folder. Write the date and what you paid for on each receipt, if these are not clearly shown on it.
- Develop a reliable way to track costs. Carry a small notebook or use an electronic system on your smartphone or computer to jot down every health care expense, so you won’t forget what to write on your receipt. Mint (www.mint.com/) has Personal Finance apps, which let you record your costs on a smartphone, available free for iPhones from the iTunes Store (www.apple.com/itunes/) and for Android devices from Android Market (https://market.android.com/).
- Add up your expenses in each category at least once a year. You’ll need to add them up at tax time to see if you qualify for deductions. It also makes sense to add them up before the open-enrollment period for Flexible Spending Accounts, so you’ll know how much to set aside for expenses for the coming year.