Even if you read the news poorly you know healthcare costs in the U.S. are astronomical. The U.S. healthcare system is more than double the cost of the world’s second costliest health care system in the U.K. And what do we get for all this extra money we pay for healthcare? Subpar performance. The U.S. currently ranks 37 according to the World Health Organization, right behind Costa Rica and ahead of Slovenia. Pathetic.
Medical issues are the one area of life that can destroy early retirement plans or any illusion of financial independence. To make it worse, health insurance is now required in the United States and it isn’t cheap. For American citizens, you are forced to participate in this inadequate health care system by financially supporting it to your maximum potential.
To add salt to the wound, many medical procedures are not covered. Weight-loss programs, cosmetic surgery, teeth whitening and hair transplants are not deductible expenses on U.S. tax returns, nor is it covered by most insurance. If your insurance does not pay for it, it comes out of your pocket. Many deductible medical expenses are not routinely covered by insurance. Eyeglasses and Lasik surgery come to mind.
Better Health Care, Lower Cost
Where you live determines if you live! Saving money on medical care is worthless if you don’t get to live to enjoy it. Which brings up a good point. Since medical costs are so high in the U.S., you probably don’t mind the higher mortality rates. Reduces the pain and suffering of living.
This Wikipedia entry lists survival rates by country for certain cancers, strokes, and heart attack. The United States is #7 for heart attack and #4 for ischemic stroke. The U.S. ranks lower for all other illnesses and diseases.
The real difference is in cost. Bypass surgery costs well into the six figures in the U.S. while the same procedure can be up to 90% less in countries with high or higher survival rates. Lasik surgery for both eyes averages $4,400 in the U.S. and $500 in India.
Many American doctors come from other countries. They study in the U.S. and get their medical degree in the U.S. Some of these doctors return home to practice. High quality healthcare is found in surprising places.
The cost of travel increases the cost of medical treatment in another country. Many simple procedures, while lower in cost abroad, will not save you money after factoring in travel expenses.
Many insurance policies don’t cover medical treatment outside the U.S. However, with the growth in high-deductible insurance plans and a long list of uncovered procedures, medical tourism is a great opportunity to increase the quality of your medical care while reducing your out-of-pocket costs, including travel expenses.
You can research international medical costs easily before making a decision with this link.
Still Getting a Deduction
Most Americans are sold on the high quality, affordable medical services provided outside the United States. The questions I hear most often in my office revolve around taxes and deductions. I have good news for you. Most of the medical costs for out-of-country medical care are deductible, including travel. There are several issues to consider, however. Your personal insurance and medical situation will determine how valuable that deduction is.
Let’s start with a common situation where you have insurance with good coverage. If your insurance is footing the bill, it doesn’t make sense to travel to another country for medical work with two exceptions. First, quality is more important than price. The low ranking of service in the U.S. for many medical procedures might cause you to consider a healthcare system elsewhere for your needs. Living is more important than insurance coverage. Second, Even the best insurance does not cover all medical procedures. Even with insurance you can face a medical bill on your own. When this happens it is time to see if there are better and more affordable alternatives.
More common is the high-deductible health insurance plan. Insurance coverage is not enough. You need to meet the deductible before the insurance begins paying the bills and even then you might have co-pays. It is important to review all options before committing to a medical facility or doctor. Better and more affordable options might be available.
The uninsured should always consider alternative medical care options. With the exception of low cost procedures and medications, it is almost always more affordable outside the U.S. Travel does add to the cost, but with the U.S. so much more expensive in nearly all medical arenas, there are significant advantages to traveling for medical care.
So what is deductible on the tax return? As with most things in taxes, it depends. First, you need to itemize to deduct medical expenses. Then your medical expenses need to exceed 10% of your adjusted gross income. Example: if your AGI is $100,000 the first $10,000 of qualified medical expenses does not count. Anything over $10,000 will be added to your itemized deductions and if your total itemized deductions exceed the standard deduction you have a tax benefit. I know. Nothing is easy when it comes to taxes.
Many medical expenses not covered by insurance are a deductible expense on Schedule A as an itemized deduction. Travel and lodging, eyeglasses, and dental are qualified medical expenses, yet not covered by most insurance.
Then there are Health Savings Accounts. Attached to many high deductible plans is a tax advantaged savings account. Money contributed to an HSA is deductible whether you use it for current medical bills or not. The account remains invested, growing tax free, until you need the funds for a qualified medical expense. Generally, a qualified medical expense for an HSA is the same as qualified medical expenses for itemizing. Withdrawals from an HSA not used for medical expenses are subject to tax at ordinary rates, plus a 20% penalty prior to Medicare eligibility.
Travel expenses primarily for, and essential to, medical care are includable medical expenses as a deduction on Schedule A or for distribution from an HSA. This includes airfare to a foreign country. Meals are generally not a qualified medical expense unless it is while you are under the care of the medical facility. Lodging is also deductible at $50 per day for the person receiving medical treatment and for a person traveling with the person receiving medical care. Example: A parent traveling with a sick child is eligible for $100 per day for lodging.
Where expenses are high the opportunity for significant wealth building exists. Since medical care is better abroad for most procedures for Americans, it makes sense to consider these additional options.
In my tax practice I give my employees an option. I provide a set amount each employee can use for health care. A health insurance professional is brought in to review the options with employees. They can choose what is best for them. If they want cash, they have a larger paycheck, but no insurance. (This only works for small businesses. Employer penalties apply once the business reaches 50 full-time equivalent employees.) They can also choose an HSA qualified plan and withhold contributions for their HSA from their paycheck. (Always allow your employer to make the HSA contribution for you if possible.) If my employee has not used up the allotment I set for her I pay the remaining portion to the HSA; the employee is responsible for the remainder. Check with your HR department to review your health insurance options. There could be gold in that visit.
Money in an HSA keeps growing tax-free for future medical bills. As age takes hold, the extra funds are a valuable extra in retirement. The numbers are compelling. A study by the Employee Benefit Research Institute showed an HSA could grow to $1.1 million in 40 year, assuming a 7.5% rate of return. It is clear medicine is an integral part of the wealth building process.
My dentist recently informed me I have a cavity on a back tooth. Cost to repair: $1,800! Insane, I thought. So I checked around. Guess what? By the time a new dentist goes through their medical theatrics there are few cheaper options available locally. I will plan my next international travel accordingly. The travel expense may not count as a deduction if the trip is not primarily for the medical procedure, but the dental repair is deductible. Therefore, the dental work can be paid for from my HSA.
This is an important consideration. The less I pay for better quality healthcare, the larger my HSA grows. I wish I would have considered the alternatives when I had Lasik done. I would have saved a fortune and enjoyed a free trip, speaking from a tax standpoint.
Everyone has at least a few uninsured areas of medical care. Finding high quality healthcare is possible for Americans if they are willing to travel. Americans who do have a better chance of living longer and money to enjoy it.