2011 and 2012 HSA Contribution Limits

The IRS announced contribution limits for Health Savings Account (HSA) for 2012.

HSA Contribution Limits

2011 2012 Change
Individual Coverage $3,050 $3,100 +$50
Family Coverage $6,150 $6,250 +$100

You can only contribute to an HSA if you have a High Deductible Health Plan (HDHP).

HDHP Qualification

The IRS also defines what qualifies as an HDHP. For 2012, an HDHP with individual coverage must have at least $1,200 in annual deductible and no more than $6,050 in annual out-of-pocket expenses. For family coverage, the numbers are minimum $2,400 in annual deductible and $12,100 in annual out-of-pocket expenses.

2011 2012 Change
Individual Coverage
min. deductible $1,200 $1,200 None
max. out-of-pocket $5,950 $6,050 +$100
Family Coverage
min. deductible $2,400 $2,400 None
max. out-of-pocket $11,900 $12,100 +$200

HSA vs. FSA

I don’t have an HSA because although my employer offers an HDHP, the annual employee premium on the HDHP is only $100 lower than the employee premium on the regular PPO plan. Saving $100/year in employee premium would increase my annual deductible by $1,000.

Instead of using an HSA, I use an FSA — Flexible Spending Account. A key difference between an FSA and an HSA is that the money in an FSA can’t be carried over. It has to be spent within the year plus a 2-1/2 month grace period. It creates some forecast challenge. If I put in too much, as I did last year, I scramble to find ways to spend it down. If I put in too little, as I did this year, I don’t get as much tax savings.

Reference: IRS Revenue Procedure 2011-32

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Comments

  1. Ted says

    I’ve had both the FSA and HSA and prefer the HSA. I never have to scramble to find stuff to buy in fear of losing money with the HSA. Also the reimbursement procedure for the HSA is much easier with a debit card.

    I’m surprised a mere $1000 difference in deductible swayed your decision. You would net save that $1000 difference in your HSA in less than 3 months (assuming a single plan) with your contributions and the premium difference.

    Unless there is something significantly different about what the plans cover and what you need coverage for, which I understand if you don’t want to disclose for the world.

    I know you’re very savvy with investing and expected you’d jump at gaining extra tax advantaged space. As you know, an HSA has the tax-deduction benefit of a 401k and the growth benefit of a Roth.

  2. says

    Ted – Maybe I’m not thinking straight. So help me out here. Suppose
    - I have $6,000 pre-tax income on the margin for health care related expenses.
    - My combined federal, state, FICA tax rate is 30%
    - I use $3,000 worth of health care services ever year, $2,000 of which is covered by PPO insurance (HDHP will pay $1,000)

    A) I put $1,000 in FSA, which pays for what PPO insurance doesn’t cover. I’m left with ($5,000 – $100 extra premium) * 70% = $3,430 after-tax money in my pocket.

    B) I put $3,000 in HSA. I’m left with $3,000 * 70% = $2,100 in after tax money. If I choose to maximize tax deferral in HSA, I pay $2,000 in health care expenses out of pocket. In the end I have $100 after-tax money in my pocket.

    Compare B with A. In B I have $3,000 more in HSA but $3,330 less in after-tax money. Basically using HSA is like funding $3,000 in a Roth with $3,330 after-tax money.

    Is it worth it? Maybe marginally. It doesn’t strike me as a no-brainer deal.

  3. KD says

    Coverage and claims service is of essence. Everything else is secondary. Otherwise no matter what the dollar sense it makes, it is not worth it.

    TFB, the most difficult part in your analysis is knowing that one should put $1000 in FSA or that you need $3000/yr. For most families the lower end is known but not the higher bound of expenses.

    As such your scenario is over determined.

    Therefore, a PPO plan + lower bound in FSA makes sense for most, I think.

  4. Ted says

    I misread and thought the premium savings was $100/month not per year. That makes the situation closer than I thought initially.

    I think your conclusion that its like funding a $3000 Roth with $3330 after tax money is incorrect.

    In scenario B, did you not leave out the additional $600 to your pocket in tax savings? I think its like funding a $3000 Roth with $2730 of after tax money.

    [3430 - ({3000-1000}*0.3) - ({3000*0.7} -2000)].

    Definitely not a no-brainer. If there’s an error, I am sure you will find it (and it won’t be the first time for me).

    :-)

  5. says

    @Ted – The $600 tax savings are already included in my original calculation. Under A I pay $1,470 in taxes, $100 in extra premium, and net $3,430 in the pocket. Under B I pay $900 in taxes (saving $570 compared to A), $2,000 in health care expenses, and net $100 in the pocket. Therefore comparing the net in-the-pocket numbers already included the tax savings.

    @KD – I agree it’s over determined. That’s another reason I’m using PPO + FSA. The total out-of-pocket limit is also lower in PPO than in HDHP. If I have unexpected health care expenses, it will cost more with HDHP + HSA.

    I think my employer prices the HDHP high to avoid adverse selection. The premium difference between an HDHP and a PPO should be much more than mere $100 a year.

  6. alanb says

    “The premium difference between an HDHP and a PPO should be much more than mere $100 a year.”

    That does seem strange. The difference is so great at my employer, that they contribute the deductible amount to our HSA if we choose to switch. They still save
    a considerable sum compared to our original PPO.

  7. Heidi says

    I agree that’s strange. The difference should be a lot more than $100.

    I have a question. I have an HSA and so does my husband. I currently I pay for health insurance coverage for both of us (through my high deductible plan). Am I correct in making a 2011 contribution to my HSA for $3,050 and another 2011 contribution to my husband’s HSA for $3,050? Or since it’s the two of us, is this considered “family” coverage and my contribution to my HSA should be $6,150?

  8. says

    Heidi – The policy covering both of you makes it a family coverage. You can allocate the $6,150 maximum between the two of you however you want. Because some HSA providers charge fees, using one account is probably better than using two accounts.

  9. Heidi says

    Thanks, Finance Buff! Good to know.

    We were getting charged a fee when our accounts were through our employers. However, last year I moved them into Connexus Credit Union, which offers a good interest rate and does not charge any fees.

  10. Ron says

    Re. the $1,000 “catch up provision. I have an HSA in my name, but it is a family HSA (covers both my wife and I). We are both over 55, so can I add $2,000 to my yearly contributions?
    Thank you

  11. says

    @Ron – From IRS Publication 969 (the $8,150 number is for 2011; make it $8,250 for 2012):

    “If both spouses are 55 or older and not enrolled in Medicare, each spouse’s contribution limit is increased by the additional contribution. If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,150. Each spouse must make the additional contribution to his or her own HSA.”

    The last sentence says you can’t add $2,000 to your contributions. You can add $1,000. You wife must open her own HSA and contribute the other $1,000.

  12. Liz says

    My husband is unemployed and I do not work. We have been using Cobra coverage for the last 14 months, and are now evaluating individual insurance options. We are considering a HDHP, since we do have investment income to put into an HSA.

    My question is: Can we open an HSA for 2011 (it’s now Nov 2011) and contribute $6,150 for 2011 and use that to reimburse for Cobra payments made in 2011? (We pay roughly $1,400/month)

  13. says

    @Liz – If you get into a HDHP with family coverage before December 1 (the “last-month rule”), you can contribute $6,150 for 2011 but you will have to stay in a HDHP for the entire 2012 (the “testing period”). Otherwise you have to pay tax on the excess contribution and pay a 10% penalty. It’s safer to contribute just the pro-rated amount for one month. Also, you can’t use the money to reimburse COBRA premiums you already paid before establishing the HSA. The money can be used only for qualified expenses incurred afterwards.

    Read the IRS Publication 969 I linked to in the previous comment, pages 4 to 9.

  14. Dan says

    Has the law changed? A few years ago, the HSA contribution was limited by the lower of the HDHP deductible amount or the IRS allowed contribution amount. Today, the only limit that I see discussed is the IRS contribution limit.

  15. StephenParrish says

    One particular aspect of the HDHP and HSA I prefer is the portability of the money in the HSA. I’d prefer my employer pay me a wage rate grossed up to cover insurance that I could subscribe to outside of being tied to an employer. If the insurance system moved in this direction then my freedom of mobility would increase and I wouldn’t be tied down by benefits to any particular employer.

    Sock the cash away for 20+ years of a career and you come out the backside, without any huge medical costs, with a sizable chunk of coin. I like that too.

    I think insurance, like that on my home and my car is there to keep me from the Po’ house.

  16. says

    Could I open an HSA in 2012 and contribute to the HSA for 2011? In 2011 I was enrolled in an HDHP, my wife had us in her jobs’s plan untill April (she quit). So I should be able to contribute $4100 (8 months) for 2011.

    My current employer plan wouldn’t allow it because I open it Jan 1, 2012 and they said I can’t contribute to it any earlier than Jan 1, 2012. I was wondering if I should open a second HSA to contribute $4100 for 2011. Would that be allowed? Thanks

  17. says

    @Ryan D – Yes, similar to an IRA, you can contribute to an HSA for the previous year until April 15 (April 17 in 2012 due to weekend and holiday).

    There’s also a “last month rule” which says if you were in an HDHP on Dec. 1, you are able to contribute the full amount for the whole year, not just the 8 months, provided that you stay in an HDHP for the entire year the following year (entire 2012 in your case). Depending on how confident you are about meeting this condition and how badly you want the additional 4 months worth of contributions, it may or may not be worth it.

    Be sure to read my other post Best HSA Provider for Investing HSA Money.

  18. mj says

    Joined HDHP Dec 7, 2011. Have HSA from previous HDHP but was not enrolled in HDHP in 2011 until Dec 7. What is my maximum allowable individual (after-tax) contribution? Cannot seem to find straight answer anywhere, but I deposited 2011 family max in previous HSA account.

  19. says

    @mj – If you weren’t enrolled in an HDHP on the 1st of any month, your HSA eligibility for that month is zero. Since you didn’t enroll in an HDHP until Dec. 7, 2011, your eligible contribution to a HSA in 2011 is zero. Use the worksheet on page 3 in the Instructions for Form 8889.

  20. Kelly says

    I’m confused on additional contributions vs excess contributions and post/pre tax contributions. Actually I think my confusion is coming from my HR dept. I understand that the individual limit for 2012 contributions, regardless of employee or employer made, is $3,100, which works out to be $258.33 per month. I understand that they can be made through payroll as pre-tax deposits directly to my HSA and that I can make deposits with post-tax dollars and subtract those on my taxes to adjust my income so that in essence those become pre-tax contributions. My employer contributes $175 per month to my HSA and I changed my contribution at the beginning of the year to contribute an additional $150 per month, which at the end of the year would leave me looking like this:

    Employer contribution $175 a month x 12 months = $2,100 annually
    Employee contribution $150 a month x 12 months = $1,800 annually
    Total 2012 contributions if continued like this = $3,900

    I asked my HR to clarify and they asked the people who do our benefits and they sent back an employer frequently asked question flyer that states the following (question from employers point of view):

    Q. What if I want to make a higher deposit for certain employees?

    A. You can do this; however, it would need to be provided on a POST-tax basis. So you would tax the amount to the employee, send the deposit to the bank as a post-tax deposit, and the employee would be able to receive a tax deduction when they complete their taxes for the year. So with these deposits, the employer does not save FICA tax.

    My HR person has taken this to mean that I can contribute more than the $3100 to the HSA account if it is done in the manner described in the paragraph above. My belief is that would only be applicable if they were making deposits higher for me then they are for other employees (based on the IRS contribution requirements for making equitable contributions for all employees based on particular classes (.i.e full time, part time, single, family, etc) so then the employer is not receiving the same tax break on those but the employee is still able to take advantage of tax deduction. But again, these deposits would still be subject to the $3,100 max for individuals.

    I should clarify I work for a very small company so we do not have an advanced HR department. Also I realize there are other ways I can do tax savings investments, but I know I am going to have some additional medical expenses this year and was hoping to contribute as much as possible to my HSA.

    Really hoping you’re still reading these and sorry to ramble!

    Thank you,
    Kelly

  21. says

    @Kelly – Your understanding is correct. The word “higher” only means higher than other employees, not higher than the IRS limit. No matter who contributes, you are responsible for not exceeding the maximum. Otherwise you will have excess contributions, which will subject you to additional tax if you don’t withdraw them timely. So to save you all that trouble, dial down your employee contribution. Don’t go over the maximum.

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