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Tuesday, May 7, 2013

Finding the HSA Sweet SpotWe all know that health savings accounts can help you save money on your healthcare costs by doing great things like lowering insurance premiums, reducing your taxable income, and helping you put aside money for healthcare both before and during retirement.  But we’re here today to discuss one of the lesser-known HSA strategies; a strategy we’re calling the “HSA Sweet Spot”.

The HSA Sweet Spot is the definition of healthcare Zen.  It is unique to health savings accounts, and when you find it, can completely change your perspective on how you both spend and save your healthcare dollars.
So, what is this HSA Sweet Spot?  Its "technical" definition, is when the balance in your health savings account grows to the point at which it completely covers your annual maximum out of pocket on your high deductible insurance plan.  That was a mouthful, and it contained a fair amount of “industry jargon”, so what does that mean to the average person? 
It basically means that you’ve got enough money in your HSA to fully cover any major medical event that may come up in the future, effectively freeing you of the monetary stress that goes along with having to deal with whatever healthcare-related issues are at hand.  In short, it simply means peace of mind.  Let’s take a look at a couple functional examples to help paint this picture clearly.
In order to have an HSA, you must first have an HSA-qualified high deductible insurance policy (HDHP).  For an individual in 2013, an HSA-qualified HDHP would have a minimum deductible of $1,250 and a maximum out of pocket of $6,250.




HSA Contribution Limits *





*If insurance is effective after January 1 and you deposit the contribution limit, you must maintain your qualified insurance coverage through the end of the following calendar year to avoid possible taxes and penalties on part of your contribution.


This range of numbers relates to the amount of money you’re required to pay before your insurance kicks in.  So in the event of an emergency or catastrophic event, the minimum you’d be required to pay is $1,250 and the maximum you’d be on the hook for is $6,250.  But…how does this relate to the HSA Sweet Spot? 

Simple.  Let’s say you’ve got a $2,500 deductible, with a health savings account.  When you have a balance of $2,500 or more in your HSA, congratulations!  You’ve hit the HSA Sweet Spot.  If at this point something were to happen to you or your family (Heaven forbid), you’d be completely covered with zero liability.  You could simply write a check for your entire deductible straight from your HSA (in this case $2,500), and your insurance carrier would pick up the rest of the tab so you can focus on getting the healthcare treatment you need, without having to worry about how you’re going to pay for all of it.
Once you’ve gotten to the HSA Sweet Spot, a new world of opportunities opens up with both your health savings account and the rest of your finances.  Consider the following strategies and scenarios:
Shifting to Investments
HSA Investments
For starters, any additional money that goes in on top of your policy’s maximum out of pocket could simply be put into investments.  You’ll always be earning interest on the funds sitting in your HSA, but since you’ve got your maximum out of pocket covered for the year, you could choose to invest any additional funds to earn some extra money.  Our account holders have access to over 6,000 different stocks, bonds and mutual funds to choose from when investing their HSA dollars.
Tending to Other Financial Needs 
HSA Freedom
Is money a little tight these days?  We’re all aware that today’s economy isn’t the greatest.  But remember, you’ve already got your healthcare bills covered for the entire year (if you even need it), so you may want to think about spending some of the funds that would’ve gone into your HSA on something else.  Groceries, college funds, home improvements, or whatever comes up.  Although it’s a great strategy to sock away the annual maximum contribution ($3,250 for an individual in 2013) to reduce your tax liability, you may simply just need to use those funds elsewhere, and you have the freedom to do that with your potential healthcare costs totally covered.
"Deductible Walking" 101
HSA Deductible Walking
 Ok, we’ve saved the best for last.  Have you ever heard of “deductible walking”?  No?  We’re not surprised, we’re pretty sure we just coined the term.  This one’s more of a long-term strategy, but bear with us here and you could save some serious money over time.  Let’s say you’ve got a $2,500 deductible, as we’ve used as a previous example. With that $2,500 deductible, let’s say your monthly premiums on your HDHP are $250.  You’ve got more than $2,500 saved away in your HSA, so your potential healthcare costs are covered…  Here’s where it gets creative.
Next year when you’re looking to renew your insurance policy, think about bumping up your deductible and maximum out of pocket.  This will lower your monthly HDHP premiums (saving you money) and all you need to do is bump up the balance in your HSA to match the new maximum out of pocket.  You could even use the savings in premiums to do it!  Once you’ve done that, you’re back to your HSA Sweet Spot with your new HDHP, and you’re saving money every single month on the premiums.  Take a look at the chart below to see a visual example of what we mean:


"Deductible Walking" - 2013 vs. 2014

2013 Figures

2014 Figures

Monthly Premium
Monthly Premium
$100 (Deposit to HSA)


“Walk” up your deductible and “walk” down your premiums each year, and you’ll be building a bigger balance in your HSA while simultaneously saving money on premiums every time you renew your policy (all while being fully covered in the event of a large healthcare event).  You can increase your deductible all the way up to the indexed annual maximum (for an individual in 2013, that would be $6,250) to save the most money you possibly can on your premiums and subsequently use those savings to max out your HSA each year, effectively reducing your tax liability, and saving for retirement and future healthcare expenses.  It’s a bit of a long-term, advanced HSA strategy but it’s definitely a win-win!
Contact Us with Questions
That’s it for our summary of the HSA Sweet Spot, but as always, please reach out and contact us if you have any questions!  Some of these topics can get a little convoluted, and as much as we try to steer clear of industry jargon we understand sometimes all these acronyms can make your eyes glaze over.  Luckily HSAs are the only thing we focus on, so we eat, sleep and breathe them.  We’re always happy to answer any questions anyone may have.  Until next time, have a wonderful day!

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Posted by HSA Admin at 5/7/2013 4:33:00 PM
Wednesday, March 13, 2013

Can I pay insurance premiums with my HSA?One of the many benefits to opening a health savings account is the safety net of having designated monies set aside for health related expenses. Because of the tax-deferred nature of an HSA, there is a personal responsibility in using the account correctly. By this I mean, using the funds only for eligible HSA expenses. But how do you know if you are using your funds in compliance with the IRS?

There is some IRS guidance available. The IRS Publication 502 is used for preparing tax returns and has a long list of what can be considered a write-off. This publication “explains the itemized deductions for medical and dental expenses that you can claim on Schedule A (Form 1040). “ However, the mistake many make is that this IRS Publication is not specific to HSAs. One of the best resources is a knowledgeable HSA administrator, which is a role that American Health Value plays for many nationwide.

The question of “Can I pay my insurance premiums with my HSA?" comes up quite frequently. The IRS Publication 502 says, “You can include in medical expenses insurance premiums you pay for policies that cover medical care.”  One would naturally take that to mean HSA dollars can be used to pay the medical premium.  However, that is true in only a few cases:

  • A portion of age-based  long-term care premiums
  • COBRA premiums
    • This includes a spouse or dependent
  • Health care coverage while receiving unemployment compensation under federal or state law
    • This includes a spouse or dependent
  • Medicare and “other health care coverage” if you are 65 or older
    • Supplemental policies are not included 
    • If the account holder is not 65 or older, Medicare premiums of spouse or dependent are not eligible expenses.
    • The “other health care coverage” would be the employee share of employer-sponsored health insurance, including retiree health insurance

So, if you are trying to decide if you can use your HSA funds to pay for insurance premiums, you now have an educated answer on which to base your decision and you can spend your valuable time doing something that makes you smile!

What makes you smile?


IRS Publication 502 (Page 2)
IRS Publication 969 (Pages 8 & 9)
IRS Notice 2004-02 (Pages 9 Q & A 27)

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Posted by HSA Admin at 3/13/2013 6:21:00 PM
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