How To Save Money on Health Care Expenses
This year I will save over $400 on my family’s eligible health care expenses and next year you can too! I was able to achieve these savings by signing up for a Medical Reimbursement Account (MRA) during my employers’ annual open enrollment period.
What is an MRA and How Does It Work?
If an MRA is offered by your employer, you can elect to enroll in the MRA during your new hire eligibility period or during the annual open enrollment period. First you will need to estimate how much you expect to spend in eligible health care expenses for the upcoming year and then elect that amount for your MRA. You can use an MRA for numerous items such as co-pays at the emergency room, urgent care center, dentist, your doctor, etc … There are limitations so be sure to review the information provided by your employer. Once you decide on an annual amount, that amount you elected will them be deducted equally from each paycheck, before taxes, and set in a separate account for use during the year for eligible health care expenses.
Important Note: If you do not use all of the money in your MRA by the end of the IRS grace period, your money will be forfeited.
Why Use a MRA?
A big benefit of an MRA is that the total amount you elect is available on the first day on your health plan year. Many employers operate on a calendar plan year, so that is often January 1. For me, this was really helpful when I began experiencing major tooth pain earlier this year. I needed urgent dental care that wound up costing $1,500! I had elected to put $2,000 in my MRA this year which was about $83 per bi-weekly paycheck. So even though when my tooth ache happened I only had contributed less than $500, I was able to pay the entire $1,500 with my MRA. Essentially this was an interest free loan from myself since I have continued to have the $83 deducted bi-weekly from my paycheck. Of course, spending an unexpected $1,500 on dental work forced my family to cut back on some of the non-essential health care costs we had planned.
One last benefit I want to share with you is that the MRA is deducted from your paycheck before taxes are calculated. This means you will be able to pay for medical expenses with money that is not taxed, making your dollar go further and reducing your tax bill. This is how my family will save over $400 this year on our health care costs. Your situation will vary based on your income, marital status, and state taxes.
|With MRA||Without MRA|
|Household Annual Income||$45,000||$45,000|
|MRA Contribution||– 2,000||0|
|Estimated Federal Taxes||– 5,615||– 5,915|
|Social Security Tax||– 3,289||– 3,442|
|Health Care Expenses||0||2,000|
|MRA Savings vs. No MRA||
*Consult your tax adviser for advice specific to your situation.
To make a similar calculation for your exact situation, Aetna has a useful MRA calculator.
Remember, if you are going to spend money on health care expenses – make sure you elect to participate in your employer’s Medical Reimbursement Account. My family will save over $400 this year just by electing this option.
Do you have a question or comment about Medical Reimbursement Accounts?