Year-End Planning for Rising Medical Costs

With medical expenses on the rise, it’s crucial to evaluate any leftover tax breaks or pre-tax funds as the year wraps up.

Experts emphasize the importance of year-end planning, especially as increasing insurance premiums, high deductibles, and greater out-of-pocket expenses tighten household budgets. For workplace health insurance, about 154 million people under the age of 65 could see premium hikes of 6% to 7% in 2026. If the enhanced premium deductions for plans from the Affordable Care Act expire as expected, premiums could more than double—up by an average of 114% for next year.

Health care costs can be unpredictable and burdensome, but there are strategies you can adopt to lessen the financial impact.

Schedule Medical Services Promptly

If you’ve tracked your medical spending during 2025, you could potentially have lower costs for covered services by the year’s end.

The deductible refers to the upfront medical expenses you cover before your plan starts paying, while the out-of-pocket limit caps your total annual costs, including copays and deductibles.

So, if you meet your deductible, you’ll pay less for services that are covered. Once you hit your out-of-pocket maximum, you typically won’t incur costs for eligible services until the new plan year begins. For example, if you have an outpatient procedure scheduled for next year, it might be worth considering postponing it to take advantage of lower costs before January 1st, according to a financial planner.

Medical Expense Deduction Possibilities

There’s a tax break available for medical expenses, although many taxpayers find it hard to utilize. You can only deduct expenses that exceed 7.5% of your adjusted gross income. Plus, the standard deduction for individual filers will be $15,750 in 2025, while it’s $31,500 for married couples filing jointly. This can be quite prohibitive; next year, those figures will slightly increase. Many taxpayers don’t itemize their deductions at all.

If you’re nearing that eligibility threshold, it might be beneficial to schedule a medical exam or procedure this year instead of waiting until 2026. It’s a good idea to familiarize yourself with whether your medical expenses qualify for deductions. Keep in mind that expenses paid with funds from a medical flexible spending account or a health savings account aren’t eligible for the deduction.

Utilize Your FSA Balance

Having a flexible spending account (FSA) allows you to set aside pre-tax money for qualified medical expenses. Keep in mind that many FSAs operate under “use it or lose it” rules by the end of the year, with maximum contributions set at $3,300 in 2025 and $3,400 in 2026.

It’s wise to check your employer’s specific rules, as some offer grace periods to use up remaining balances or allow partial rollovers. If you need to spend your balance by December 31st, consider all the eligible expenses—from doctor visits to buying medications.

Some individuals, especially first-time FSA users, may be unaware of how they work and lose their funds without realizing it. It’s essential to stay informed.

Maximize Your HSA Benefits

A health savings account (HSA) serves a similar purpose to an FSA but offers more flexibility since you can keep the money there indefinitely. Any contributions and growth in the account can be used tax-free for qualified medical expenses.

Many financial planners suggest treating an HSA as part of your retirement planning. You might want to pay for medical expenses out-of-pocket while keeping your HSA funds intact to grow over time. Once you reach 65, you can use the funds for non-medical expenses, but such withdrawals will be taxed.

For those under 65, using HSA funds for non-approved medical expenses incurs a 20% penalty along with taxes. HSAs are compatible with high-deductible health plans, and contribution limits for 2025 are set at $4,300 for individuals and $8,550 for families, edging up to $4,400 and $8,750 respectively in 2026. If you’re over 55 and not on Medicare, there’s an additional $1,000 contribution limit.

Contributing more can help lower your taxable income, whether the funds are spent on current medical needs or rolled over for future use. If you haven’t reached the maximum contribution level in your HSA, remember that there’s still time; the deadline for 2025 contributions extends to April 15, 2026.