The Benefits of Having a Health Care Fund

By Kristen May , last updated January 9, 2012

Having a personal health care fund can be a wise financial decision for you and your family. Regardless of whether your fund is a separate savings account you maintain or just a portion of your household's emergency fund, having money set aside for paying for health care can protect you from negative financial repercussions. Consider starting to set aside money for health care if you haven't already, and build up a fund so you can reap the benefits.

Make Co-Pays

Even if you have health insurance, you likely have to make co-pays every time you visit a doctor. The co-pay could be a fixed amount per visit or a percentage of your bill. Rather than trying to budget for these on an ongoing basis, even when some of your doctor visits are unplanned, just set aside money in a health care fund and use it to make co-pays when you need to. This helps simplify your budgeting and encourages you to visit the doctor whenever you need to because you know you have the money set aside for the co-pay.

Pay Unexpected Bills

Health care can be expensive, and sometimes you end up with bills much larger than you expect. For example, you could have a sudden tooth problem and you might need to get a filling or root canal that your insurance does not cover. Or you might have a sports injury and need to visit the emergency room. You can't plan for these expenses in your budget, but if you have a health care fund, you can use the money to pay unexpected bills whenever they occur.

Protect From Bankruptcy

Medical care is one of the leading causes of bankruptcy for individuals in the United States, many of whom have health insurance. Just because you have insurance doesn't mean you are protected from financial ruin. If you have a health care fund, you can use this to help you pay your bills when you suffer a medical catastrophe. Use your health care fund not only to keep up with payments on health care bills, but also to help your regular bills if you had to take unpaid time off work due to your medical condition. Having a buffer saved up can provide the extra funds you need to get through the financial pinch without sending yourself into a spiral of debt and ruining your credit score.

Reap Tax Benefits

Some types of health care funds come with tax benefits that you can take advantage of to reduce your bill or increase your refund every April. One type is a Flexible Spending Arrangement, which your employer manages. You elect to have a specific amount withheld from each paycheck and your employer reimburses you from this amount every time you have to pay health care expenses out of it. The amount withheld is not subject to payroll taxes or income taxes, but you must use it all during the calendar year or forfeit it. Another type of health care fund is a Health Savings Account, which you establish alongside a high-deductible health insurance plan. You can put money into the Health Savings Account whenever you want, keep it in there as long as you would like, and you do not have to pay taxes on the money you put in or take out, as long as you use it for health care expenses.

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