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  • Margaret Curtis, MD

A PSA, and HSAs

First, a Public Service Announcement: your employer's open enrollment period is probably open, so take 15 minutes to review your benefits. At bare minimum, you should make sure you are maximizing your retirement savings and have appropriate health insurance. This article, from a website run by a CFA/CFP who specializes in physician finance, spells out some considerations for high earners.


You probably don't need most of the benefits available to you (dependent life insurance, identity theft insurance) and some you should examine carefully to see if they are the best product out there for you (short-term disability, long-disability). One you may need is a Health Savings Account or HSA (not to be confused with a Flexible Savings Account or FSA).


Both HSAs and FSAs allow you to put pre-tax money aside for health-care expenses - the money is exempt from federal, state and Social Security taxes. Unlike an FSA, an HSA can be carried over year to year indefinitely and can be invested to earn interest. The interest is tax-free, and if you use the money for qualified health-care expenses the principal remains tax-free too. Or, you can use your HSA money for pretty much anything after age 65 and only pay at your marginal tax rate at the time you withdraw - just like an IRA. A nice summary of the different health spending accounts is here, and a list of HSA providers is here.


The kicker with an HSA is that you must have a high-deductible health insurance plan as defined by the IRS. In 2019, a high deductible is defined as a $1350 annually for an individual and $2700 for a family. (Because our health insurance system is nonsensical, the HSA-eligible health insurance plans available to me and my my husband through our employers actually have lower deductibles than some of the alternatives. Go figure). The annual limit for HSA contributions for 2019 is $3000 for an individual, $7000 for a family (you can contribute an extra $1000 if you are over 55). A few more fine points:

  • if start your HSA by December first, you can fund it to the max for the calendar year. If you do this, you have to keep your high-deductible health plan for at least 12 consecutive months after starting your HSA or pay tax on the extra contributions (this is explained here).

  • You can't have both an HSA and an FSA in the same family (meaning, if your spouse has an FSA you can't open an HSA). You may, however, be able to have a "limited purpose" FSA also if your employer allows it.


My employer offers a contribution into the HSA if I participate in a wellness program at work: I get a cholesterol screen, an hour of "health coaching" and $2000 into my HSA. Since I can keep this forever, I essentially just got an additional employer match into my retirement savings. My contribution ($4900) to my HSA will save me ($4900*0.32)= $1568 on my taxes this year, assuming a marginal tax rate of 32%. (If I wanted to calculate my hourly wage, it would be: $2000 employer contribution + $1568 tax savings for 1 hour of "health coaching" + 30 minutes going through my benefits options = $2379/hour. As they say around here, "Sure beats working for a living".)


If you anticipate high health care expenses (related to a pregnancy or chronic health conditions, for example) you have to do the math to decide if you will come out ahead with a high-deductible plan: saving on premiums + saving on taxes via HSA vs higher out-of-pocket limits. Of course, the money is still there and can be used for health care expenses at any time if you need it. If you don't anticipate high health care expenses you should still do the math (you should always do the math: trust but verify), and then go start your HSA.






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