1 in 4 Americans Says Healthcare Costs Are a Problem. This Account Can Help

The frustrating thing about healthcare bills is that they can arise when you least expect them. Even if you do a good job of taking care of your health, you never know when an illness or injury might strike.

It's not so shocking, then, to learn that 27% of Americans consider healthcare costs to be a big risk to their financial security and well-being, according to the latest New York Life Wealth Watch survey.

If you're worried about medical bills impacting your finances, there are steps you can take to make it less likely that they'll end up driving you into debt. For one thing, you could pad your savings account so you have cash reserves to tap when healthcare bills arise.

But if your health insurance plan is compatible with a health savings account, or HSA, then it pays to participate. Doing so won't lower your healthcare costs, but it will help you save money on taxes in the course of paying for medical care.

How HSAs work

An HSA is a savings account that's designed to help you cover near- and long-term healthcare expenses. Contributions to HSAs go in tax-free, the same way traditional IRAs and 401(k)s are funded with pre-tax dollars. So if you put $1,000 into an HSA, that's $1,000 of income the IRS won't tax you on.

You can take an HSA withdrawal at any time to pay for medical expenses. And you also don't have to use up your plan balance every year.

One great thing about HSAs is that they allow you to invest funds you don't need right away to grow your balance into a larger sum. Investment gains in an HSA are tax-free, as are withdrawals from an HSA, provided that money is used for qualifying medical expenses.

Are you eligible for an HSA?

HSAs are a pretty great savings tool, but there's one problem -- not everyone is eligible. To be able to fund an HSA, your health insurance plan might conform to certain rules that change annually.

For one thing, your health insurance plan has to have a minimum deductible. This year, it's $1,500 for individuals and $3,000 for families.

Your health insurance plan also has to have a limited out-of-pocket maximum. This year, it's $7,500 for individuals and $15,000 for families.

It may be that your HSA eligibility changes from one year to the next. It really all depends on your health insurance plan. If you get your insurance through an employer, someone in your benefits department should be able to tell you if your plan is HSA-compliant.

Many employers offer HSAs that employees can sign up for. But if your employer doesn't make one available to you, you can open one independently.

Healthcare costs have the potential to wreak havoc on any budget. Boosting your savings can help you avoid debt when medical bills pile up. But if you're eligible for an HSA, then you might as well fund one of these accounts and enjoy the tax savings a regular bank account won't be able to give you.