This Tax Change Could Make Healthcare More Affordable for You

Certain life expenses are unavoidable. We all need housing, for example, and we all need to eat.

Similarly, healthcare is an expense that's hard to steer clear of. This doesn't mean you'll have to swipe a credit card at your doctor's office every day. But you may find yourself raiding your savings account every few months to cover a medical bill.

It pays to contribute to a tax-advantaged account like an HSA (health savings account) if you can. An HSA won't make your actual healthcare bills less expensive. Instead, you'll benefit in the form of tax savings. 

Let's say you end up with $1,000 worth of medical bills one year. If you dip into your bank account to pay those bills, they'll cost you $1,000.

If you fund an HSA with $1,000, your medical bills will still technically cost you $1,000 -- only not really, because you'll save yourself taxes on that $1,000 contribution. So yes, you'll pay $1,000 to your medical provider, but you might save $240 in taxes by making that contribution, depending on your tax bracket.

In other words, HSA contributions are made on a pre-tax basis. So if you put $1,000 into an HSA, you're not being taxed on $1,000. Your exact savings will hinge on your tax bracket. But in this example, if you're in the 24% tax bracket, a $1,000 HSA contribution saves you 24% of that, or $240. 

Meanwhile, in 2024, HSA limits are increasing. If you're eligible for one of these accounts, you have even more opportunity to shield income from the IRS and reap savings that way.

Know the new limits

With an HSA, you can adjust your contributions whenever you want, provided you're not exceeding the maximum allowable contribution for the year. So if you initially signed up to only put, say, $1,000 into your 2024 HSA, it's not too late to add more money.

Now the amount you can put into an HSA hinges on your coverage and age. Right now, the limits for HSAs are:

• $3,850 for self-only coverage if you're under 55
• $4,850 for self-only coverage if you're 55 and over
• $7,750 for family coverage if you're under 55
• $8,750 for family coverage if you're 55 or older

In 2024, the limits are rising to:

• $4,150 for self-only coverage if you're under 55
• $5,150 for self-only coverage if you're 55 and over
• $8,300 for family coverage if you're under 55
• $9,300 for family coverage if you're 55 or older

You may not be able to max out an HSA if you have many other bills you're on the hook for. But if you can max out your HSA, you'll save even more money by getting to pay the IRS less.

Is your health plan compatible?

Your health insurance plan needs to meet certain requirements for you to be able to participate in an HSA. In 2024, your plan must have a:

• Minimum deductible of $1,600 for self-only coverage
• Minimum deductible of $3,200 for family coverage
• Maximum out-of-pocket amount of $8,050 for self-only coverage
• Maximum out-of-pocket amount of $16,100 for family coverage

Qualifying for an HSA one year does not automatically mean you'll be eligible for one the following year. If you're not sure and you get health coverage through work, talk to your benefits team about whether your plan is compatible in 2024. If you buy your own coverage, your plan should indicate if it's HSA-eligible or not. Just log into your healthcare.gov account to check.

You may not be able to avoid healthcare bills. But you can at least save money when paying them. And in 2024, you can potentially save even more if you manage to max out your HSA.