White Coat Investor Podcast – Episode #416: HSAs, FSAs, and Malpractice Insurance

Release Date: April 24, 2025
Host: Dr. Jim Dahle

1. Corrections and Clarifications

Timestamp: 00:16 – 07:30

Dr. Jim Dahle begins the episode by addressing listener feedback and corrections from previous episodes. A notable correction involves the treatment of Required Minimum Distributions (RMDs) and the specifics of rolling over a 403 plan to a 457. An advisor pointed out that while rolling a 403 to a 457 is possible, it still subjects distributions from the 457B to a 10% early withdrawal penalty before age 59½, as noted in IRS Section 72T9 and Section 457.

Dr. Dahle (06:45): "You can roll a 403 to a 457, but there's no advantage to doing so. And I don't think I pointed this out. He says the 403, even if rolled to a 457, still attracts the 10% early withdrawal penalty if distributed from the 457B prior to age 59 and a half."

This correction ensures listeners have accurate information regarding retirement account rollovers and associated penalties.

2. Understanding Malpractice Insurance and Contractual Clauses

Timestamp: 07:30 – 20:06

Dr. Dahle delves into the complexities of malpractice insurance, inspired by a discussion on the L Word podcast by Dr. Gaeta. The conversation centers around the potential vulnerabilities posed by large medical groups structured as numerous small subsidiaries. This setup, akin to a "lizard's tail," allows the parent organization to avoid large judgments by bankrupting individual subsidiaries, potentially exposing physicians' personal assets.

Dr. Dahle (09:50): "It's sometimes referred to as the lizard's tail. Like a lizard, if some predator grabs their tail, their tail can just break off and they can run away and they can grow a new tail."

He emphasizes the importance of understanding the business structure of your employer or group to assess personal liability risks. Further, he discusses the significance of "veto clauses" and "hammer clauses" in employment contracts. These clauses determine who has the authority to settle lawsuits—whether it's the physician or the insurance company.

Dr. Dahle (12:15): "Understand exactly how your contract with your insurance company works. Who's got the power to decide whether there's a settlement or whether we take this one to the mat in the courtroom."

By comprehensively understanding these contractual elements, physicians can better navigate their malpractice policies and safeguard their personal and professional interests.

3. Deep Dive into the XIRR Function in Excel

Timestamp: 20:06 – 27:25

Addressing a listener's question, Dr. Dahle provides an in-depth explanation of the XIRR (Extended Internal Rate of Return) function in Excel, a tool crucial for calculating the annualized return of investments considering irregular cash flows.

Dr. Dahle (22:50): "XIRR is just a way to calculate the dollar weighted return of your portfolio, which is really the return that matters."

He outlines the necessary steps:

1. Cash Flows: Enter all contributions (positive numbers) and withdrawals (negative numbers) in one column.
2. Dates: Correspond each cash flow with the exact date using Excel's DATE function for accuracy.
3. Final Value: The last entry should represent the current account balance as if withdrawn today.

Dr. Dahle emphasizes the importance of including every cash flow for an accurate calculation but clarifies that reinvested dividends, which don't involve actual money entering or leaving the account, can be excluded.

Dr. Dahle (22:20): "But you can't put reinvested dividends though, because that's not money coming out of the account. It's only money when it comes into the account and comes out of the account."

He also touches on using XIRR for entire portfolios, suggesting that all relevant cash flows across different accounts (e.g., 401K, HSA, 457, Roth IRA) should be aggregated similarly. Dr. Dahle notes that while this method is thorough, it can be time-consuming for those with frequent transactions.

4. Quote of the Day

Timestamp: 27:25 – 28:45

Dr. Dahle shares a poignant quote from Warren Buffett to underscore the episode's financial themes:

Warren Buffett: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

He elaborates on Buffett's philosophy, highlighting the importance of long-term investment and ownership in a company’s success. Dr. Dahle contrasts speculative trading with the value of holding stocks to benefit from a company's growth and profitability over time.

Dr. Dahle (28:15): "When you're buying stocks... you really are functioning as an owner of that company... the market becomes not a voting machine, but a weighing machine."

This emphasis on patience and ownership alignment aligns with the White Coat Investor's principles of disciplined investing for high-income professionals.

5. Listener Q&A: HSAs, FSAs, and Related Issues

Timestamp: 28:45 – End

Dr. Dahle addresses several listener questions regarding Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), providing practical advice tailored to the unique circumstances of medical professionals.

a. HSA and FSA Eligibility Conflict

Question:
A listener and their spouse live in different states, each with separate health plans. The listener enrolled in an HSA through their employer until June 2024, while the spouse opted for a non-deductible plan with an FSA starting July 2024. After a maternity event in October, the spouse contributed $1,500 to the FSA alongside $1,000 from payroll. They discovered that both HSA and FSA cannot coexist in the same tax year and seek solutions.

Dr. Dahle's Response (13:40 – 15:21):

• Ineligibility: You cannot simultaneously contribute to a regular healthcare FSA and an HSA.
• Solution: To rectify excess HSA contributions, withdraw the excess funds along with any earnings. Alternatively, adjust contributions by increasing salary in lieu of FSA contributions.
• Advice: Utilize limited-use FSAs (e.g., for dental and vision) if intending to maintain HSA eligibility.

Dr. Dahle (14:30): "You can't do both unless it's a limited use FSA."

b. HSA Eligibility After Military Service

Question:
A listener leaving the military wishes to join their spouse's high-deductible health plan (HDHP) to maximize the family HSA contribution. Currently, they are enrolling separately through work in a non-HDHP. They inquire if joining the spouse’s HDHP alongside non-HDHP coverage affects HSA eligibility.

Dr. Dahle's Response (16:30 – 20:06):

• Eligibility Confirmation: If the listener's only health coverage is the spouse's HDHP, they remain eligible to contribute to the HSA.
• Income Sources: Secondary insurance (e.g., non-HDHP coverage) does not disqualify HSA contributions as long as it does not provide additional health benefits outside the HDHP.

Dr. Dahle (17:20): "She should still be able to make a family sized contribution so long as she doesn't have any other health insurance coverage other than that high deductible plan."

c. Dependent Care FSA Reimbursement Issues

Question:
A physician switching jobs in 2024 maximized their dependent care FSA through a new employer starting August. They seek advice on reimbursing dependent care expenses incurred before the FSA's onset, as the company rejects pre-August receipts, risking the loss of almost $3,000.

Dr. Dahle's Response (20:06 – 20:45):

• Use-It-or-Lose-It: FSAs require funds to be used within the plan year; pre-enrollment expenses are ineligible.
• Possible Actions: Attempt to identify eligible expenses post-enrollment and utilize the $660 rollover option into the next year.
• Advice: Avoid contributing more to an FSA than anticipated expenses to prevent forfeiture.

Dr. Dahle (19:55): "FSAs are use lose accounts. They are not like HSAs where it rolls over to the next year and you can invest it for decades."

d. Asset Allocation Misconception

Question:
A listener's friend believes their asset allocation is miscalculated, considering pensions and Social Security, suggesting that their brokerage account's 100% equity is actually about 25%. They seek Dr. Dahle's perspective on this calculation.

Dr. Dahle's Response (21:26 – 22:50):

• Clarification: Asset allocation should reflect the composition of controllable investment assets only. Pensions and Social Security are separate income streams and should not be factored into investment asset allocation.
• Rebuttal to Misconception: The brokerage account remains 100% equities, as pensions and Social Security are not part of the investable portfolio.
• Advice on Behavior: Having guaranteed income sources doesn't necessarily prevent poor investment behaviors like panic selling during market downturns.

Dr. Dahle (21:40): "His asset allocation is 100% stocks. That's just the way it is."

Closing Remarks

Dr. Dahle wraps up the episode by reiterating key takeaways:

• Malpractice Insurance Awareness: Understand your employment contract's clauses to protect against personal liability.
• Financial Tools Mastery: Utilize functions like XIRR in Excel to accurately gauge investment performance.
• HSAs vs. FSAs: Navigate the rules governing these accounts to optimize tax advantages and avoid forfeitures.
• Asset Allocation Fidelity: Keep investment strategies distinct from guaranteed income sources to maintain clarity and effectiveness.

He also encourages listeners to engage with the podcast by nominating financial educators and leaving reviews to help spread financial literacy among high-income professionals.

Dr. Dahle (26:00): "The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only."

Notable Quotes:

1. Dr. Jim Dahle (06:45): "You can roll a 403 to a 457, but there's no advantage to doing so."
2. Dr. Dahle (09:50): "It's sometimes referred to as the lizard's tail."
3. Dr. Dahle (12:15): "Understand exactly how your contract with your insurance company works."
4. Warren Buffett (27:25): "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."
5. Dr. Dahle (21:40): "His asset allocation is 100% stocks."

This episode of the White Coat Investor Podcast offers invaluable insights into managing HSAs, FSAs, and understanding malpractice insurance complexities. Dr. Dahle's expert guidance empowers medical professionals to make informed financial decisions, fostering long-term financial health and security.