Root canals and tax advantaged accounts

I scheduled a root canal for the end of the month.  Once that tooth is taken care of, I should be able to sleep and think better.  Duke dental insurance will pick up a small portion of the expense.  Most of the cost will be out of pocket.  I will throw it on a credit card and then submit most of the personal component of the procedure’s cost to a health reimbursement account.   By mid-March, I should get a nice big check back from that account to pay off the credit card while still collecting airline points.

An HRA is a tax advantaged vehicle that employers can set up for their employees.  The money can be spent on a wide variety of medical costs including dental/vision services as well as cost sharing obligations.  I get a significant tax advantage from it.  I don’t  have to pay income or FICA taxes on the part I’ve added to the account on top of what Duke added.  The part that I throw into the account is immediately taken off the top of my total compensation for tax purposes.

I am getting about a 30% net tax discount for my root canal. Thanks for the help everyone!

2019 Me is doing well.  I have a great job that pays well while having me do things that I love to do.  My wife has an awesome job.  We are secure. We have both liquid and quasi-liquid reserves.

2010 Me was stretched in fifteen different directions. I was out of work, my wife was massively underemployed and we had a one year old at home. My wife and I were uninsured. My daughter was on CHIP (best insurance we ever had!). I got to spend the year with my daughter as not paying for day care and surviving on unemployment was the best of bad options.

Assuming that 2010 Me had an HRA with a non-zero balance, and if I needed a root canal, I would be getting a 17% discount (FICA and 10% tax bracket) from the Feds.

That year was probably the most financially stretched year that I will experience as an adult. This year looks to be the easiest year financially. I’m not going to turn down the help but this is a jacked up system. I am getting the most federal aid for a root canal in a year when I have the most capacity to grumble, mumble and bear the cost. In 2010, a root canal done by a licensed and trained dentist would have been a major financial emergency. I would have been flipping the coin behind my mouth and my mortgage. And I would be getting very little help.

Deductions to taxable income are asinine when those deductions are applying to medical expenses. Credits or capped deductions with bump-ups to send the help to the people with the highest marginal utility of the last dollar would make way more sense from a policy and a moral perspective.






24 replies
  1. 1
    Mart says:

    It surprised me when as my income grew I found all these new ways to save on taxes and fees. Almost like the system is rigged for the wealthy. Just ask Professor Warren.

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  2. 2
    frosty says:

    A moral perspective in a discussion of taxes. Bwahahahahahah!

    You’re too funny

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  3. 3
    Alan Barney says:

    An appointment with a Dentist in 2010 may have prevented an expensive root canal in 2019.

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  4. 4
    dnfree says:

    The same is true in other areas. My bank gives me free checks and a higher interest rate on my checking account than many people get on their savings accounts, because I’m able to keep a balance in the account. Poor people, who could most use the extra money, don’t get interest at all on whatever amount they are able to accrue. (The free checks isn’t as big a benefit as it was back when I wrote more than a couple of checks a month, but still, that’s how it works.)

    I wait until a local store has toilet paper on sale at a good price, and if you buy $30 worth they give you a gift card worth $10. So our toilet paper is really cheap. Poor people have to buy toilet paper usually full-price, as they need it. (I once took a quiz that was supposed to rate how frugal I am, and one of the questions was “Do you have more than 18 rolls of toilet paper in your house?” Yes, I do, but it’s because I’m frugal AND I’m not poor.)

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  5. 5
    WereBear says:

    @dnfree: Poor people have to buy toilet paper usually full-price, as they need it.

    And they tend to have less storage space.

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  6. 6
    Ruckus says:

    a policy and a moral perspective.

    I see a problem here.
    Half the country want policies that screw others and have no morals.
    But you knew that.

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  7. 7
    oldster says:

    I agree that these HRA’s are bad public policy.

    They are also a pain in the ass to use.

    The companies that administer them get to keep any portion that you don’t spend. So they have every incentive to fight you tooth and nail over every claim you file.

    One year we had a lot of expenses, and the company (Payflex) nearly killed us with demands for documentation.

    This year we were luckier with our health, and wound up with a thousand unspent at the end of the year. Rather than let those blood suckers keep it, we bought a round of prescription eyeglasses for the family that we would not have purchased otherwise.

    And they paid for those with no dispute of any kind.

    So it’s a bad system that distorts behavior if you are lucky and rewards their rapaciousness the rest of the time.

    I’m inclined to say that this is another example of why you should not make social policy via tax policy, but that’s a bigger claim than I can back up. Maybe sometimes it works.

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  8. 8

    @Alan Barney: Not in this case; I had regular dental visits 2006-2009 and then 2012 to present.

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  9. 9
    randy khan says:

    @oldster:

    There are different kinds of accounts. The one I have essentially is like a health IRA – it accumulates over time, and I can draw money when I have expenses without really any documentation. (I have to keep the documentation in case the IRS comes calling, but that’s not terribly likely.) That sounds like what Mr. Anderson has.

    I totally agree, by the way, that the tax treatment of these accounts is kind of bizarre from a health policy perspective. The people who really need the tax benefits are the people who make less money, not people who make more. (My company mitigates this by making direct contributions to employees’ accounts – the same amount for everyone – to cover some of the deductible under our health insurance, but our additional individual contributions still are more tax-friendly for high earners than low earners.)

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  10. 10
    Bostonian says:

    If you’re needing a root canal, look for a dentist with cad/cam crown milling capability. Instead of two to four visits, you can get the whole job done in one visit.

    I’ve had multiple root canals, and cad/cam crown milling changes the experience drastically for the better.

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  11. 11
    Victor Matheson says:

    @oldster: “I’m inclined to say that this is another example of why you should not make social policy via tax policy, but that’s a bigger claim than I can back up.”

    NNNNNNNOOOOOOOOO!!!!!!!!!

    That is absolutely not the moral you should take from this tale. The moral you should take is that tax policy will automatically affect social policy no matter how you create your tax policy. Therefore you want competent, ethical lawmakers with some sense of social justice making the decisions about what we want our social policy to be and really smart experts crafting tax policy to work the way those lawmakers want.

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  12. 12
    currants says:

    @Victor Matheson:

    tax policy will automatically affect social policy no matter how you create your tax policy. Therefore you want competent, ethical lawmakers with some sense of social justice making the decisions about what we want our social policy to be and really smart experts crafting tax policy to work the way those lawmakers want.

    YES YES YES and YES. I had hoped to work for one of those lawmakers on environmental concerns (agriculture and food security specifically) but had spectacularly bad timing and am now back teaching (writing, at a UMass campus), for less income than I made before I started down that path 7 years ago. Oh well. Teaching writing is sometimes brain-numbingly hard work (also sometimes immensely gratifying), but it’s good work and (so far anyway) a social good, and those things matter to me.

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  13. 13
    Victor Matheson says:

    @randy khan: Everything in the tax code that is a tax deduction (as opposed to a refundable credit) has the same problem. This includes mortgage interest, property taxes, most health care costs, property and casualty losses, charitable contributions, and unreimbursed business expenses along with a bunch of other things. All of these things essentially work in the tax code to reduce a person’s income. If a person is rich, reducing their income by $1 reduces their federal income tax by 37 cents in 2018. If a person is poor, reducing their income by $1 reduces their federal income tax by at most 10 cents and perhaps by even nothing.

    Tax credits, on the other hand, direct reduce people’s tax paid. A $1 tax credit reduces both the rich person’s and the poor person’s taxes by $1. A refundable tax credit is even better for the poor in that even if a poor person is not paying any income tax at all, they government will actually write a $1 check to the poor person for the tax credit. The Earned Income Tax Credit is a refundable tax credit. Child care is also a tax credit rather than a deduction although it is limited to at most $6,000 per family per year and it phases out pretty quickly. I don’t know if it is refundable. I don’t think so. Solar energy and energy efficiency subsidies are tax credits not deductions but again it is not refundable, I don’t think.

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  14. 14
    Al Z. says:

    A root canal is the reason I switched back to a normal PPO plan instead of “lower” cost, high deductible plan offered by my employer. The root canal ate up my coverage to the annual maximum; so for example, I just received a $200 bill for my end of the year preventative (!!) visit – which I thought was 100% covered. It is fully covered until you reach your annual max. I guess my HSA was supposed to pick up the slack but the root canal cleaned that out as well. Live and learn I guess (but it still pisses me off).

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  15. 15
    Ohio Mom says:

    Another aspect of this story is that the Anderson family was willing to sign up for CHIP.

    I know several families who were in similar straights back then who refused to consider “getting welfare”; I know a number of families with adult kids with DD (development disability) who will not sign their kids up for all the benefits they are entitled to.

    There are sociology dissertations in what’s behind all this: shame disguised as misplaced pride, denial, being intimidated by “the system” and the required paperwork.

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  16. 16
    John Monahan says:

    And let us not forget a major factor of this particular situation – dental insurance sucks. There’s a ridiculously low cap on annual benefits (generally $1000-1500) and major procedures are frequently only partially covered if covered at all. I’ve never even heard of anybody’s insurance covering dental implants. As a poor sap whose has a serious number of them (missing a whole bunch of adult teeth), I’ve had to lay out a lot of money over the years for them. They are a major improvement over dentures, but they do cost more so insurers don’t want to cover them and don’t.

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  17. 17
    randy khan says:

    @Victor Matheson:

    You’re absolutely right. (Although thanks to the 2017 tax law, it’s somewhat less true of state and local taxes, but only because of the cap.)

    The way I think of this is that the use of tax credits increases the progressivity of the tax code, while the use of deductions reduces it.

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  18. 18
    Mart says:

    Weren’t all these stupid HSA’s and HRA’s and whatever ginned up so they can say it is your fault you have not been investing in your health savings account the past 40 years; if you did you would have been prepared for the cuts in medicare? 401K’s were made up so companies could dump pensions. Etc.

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  19. 19
    Kelly says:

    For me the big question is why are dental and vision care not part of all health insurance? I’d put including that coverage high on the list of incremental Obamacare improvements.

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  20. 20
    cintibud says:

    Wow, David your situation reminds me of my situation in late 1987. I was unemployed, my wife was a part time church musician (i.e. peanuts) We had a child on the way. We had to move in with my parents, so no mortgage or rent payments (Thanks Mom and Dad!) but I don’t remember what kind of health insurance we had. I’ll have to ask my wife but our daughter was delivered in a hospital and the bills must not have caused me any more headaches than everything else we were dealing with. We must have had some affordable insurance without huge deductibles.

    We also received tons of formula via WIC and I was surprised that my tax return for 1987 not only gave back what taxes I did have withheld before I lost my job but there was a note from the IRS that I was eligible for EIC and I received a much larger check than I was expecting.

    Boy times have changed.

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  21. 21
    StringOnAStick says:

    @Alan Barney: Root canal therapy happens, even a totally normal seeming tooth that has never even had a filling or been touched in any way can suddenly have the nerve develop such chronic and irreversible inflammation that the only option is having the nerve and blood supply in the canals removed and replaced with rubber (that’s what root canal therapy is, basically). People sometimes have some kind of facial/jaw trauma and then years later the nerve slowly dies, leaving you with a very darkened tooth as the blood inside the canals of the roots coagulates and turns black with no pain or a nerve that is now giving you a buzzsaw of pain. Usually you need root canal therapy because an old filling has failed or the tooth has cracked from a filling, if the crack goes below the gumline then the tooth isn’t salvageable and now your looking at no tooth, a bridge, or an implant. Moral of the story: if you have a tooth that zings you when you chew, getting it checked sooner rather than later ups the chances that it can be saved the cheapest possible way with just a crown. Wait longer and the costs go up to save it, or it may progress to being a no hope of saving it situation. Bad stuff doesn’t get better on it’s own and it doesn’t go away as far as teeth go.

    I’ve had numerous patients ask my boss (a DDS) if he can tell them which insurance to buy, if any, because they are going to have to pay for it themselves now. They want him to look into his magic mirror and tell them exactly what they’ll be needing to fix in the years ahead, which is mostly impossible. If you’ve got a bunch of large fillings and you grind your teeth, then crowns and possibly root canals are likely in your future, but a dentist can’t tell you exactly when. Decay happens, as does pissed -off nerves. Stuff gets filled/crowned/root canal-ed when decay and/or symptoms appear, not before (unless you’re going to one of the very production oriented dental chains, who leave no possible profit ungathered, but that’s another story).

    Dental insurance in general is pretty crappy, it is basically a buyers club with less than thrilling benefits; usually preventative is 80 to 100% covered, fillings are similar, crowns at 50% and bite splints or implants not covered at all, and that’s good insurance. I have a retired friend who could not afford the 4 crowns and bite splint that he needed so they did a bunch of research and found a DDS across the border from Yuma, AZ and got the work done there for about 1/3 the cost. They said that everyday a line or retired U.S. and Canadian citizens walk across the border to a town that is basically there just to serve their dental needs; in high season the paid parking lot on the U.S. side is packed (take a look at Google maps for Yuma, AZ and you’ll see it all). Retired people usually have no dental insurance and are often in their highest dollar dental needs part of life, so this is one solution out there.

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  22. 22
    StringOnAStick says:

    @Kelly: I’d add hearing care to that list too, since having failing hearing that isn’t treated (meaning hearing aides, so big $) has been proven to lead to increased rates of social isolation and dementia. I know from Canadian friends that dentistry is not included in the Canadian universal coverage system, I’m pretty sure vision is the same.

    Poor dental status is a health care problem, period. Untreated gum disease (periodontal disease) increases the risk of heart attack and stroke, along with many other things but just think of it as having an untreated raging infection anywhere in your body is never a good thing.

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  23. 23
    debbie says:

    @Ohio Mom:

    When I was unemployed (1.5 years), I eventually decided to apply for Medicaid. I made an appointment, gathered all requested documents, showed up, was told to wait, waited four hours, and then was told there was no such thing as an appointment. That was it for me.

    @oldster:

    The companies that administer them get to keep any portion that you don’t spend.

    My HSA will only roll over $500 to the next year. In early November, to my horror, I realized I still had $1,100 to spend. Spent most of the $600 overage on new glasses. Then two weeks before the end of the year, my computer glasses broke. I bit the bullet and replaced them. After that, the balance of $1.72 rolled over to 2019. I can’t win for trying.

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  24. 24
    biff murphy says:

    Care credit by Synchrony Bank lets you pay the bill and gives you 1 year interest free to pay the bill off, but you gotta get the bill paid in a year or they trounce you w/ interest

    ReplyReply

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