(NewsNation) — Open enrollment season is here, and for millions of Americans, it’s a chance to start saving through one of the most tax-advantaged accounts available.
Health savings accounts, or HSAs, let those with high-deductible health plans set aside pre-tax money for medical expenses — from Advil and X-rays to doctor’s visits.
They’re widely considered one of the most powerful long-term savings tools thanks to a triple tax advantage:
Tax-free contributions: Pre-tax dollars lower your taxable income.
Tax-free growth: Interest and investment earnings aren’t taxed.
Tax-free withdrawals: Money used for qualified medical expenses is tax-free.
As of mid-2025, HSAs had more than $159 billion in assets across 40 million accounts, according to Devenir — a 16 percent jump from the year prior, driven largely by rising investment balances.
Still, research suggests roughly one in three adults with a high-deductible health plan don’t have an HSA — and most who do have not contributed to it in over a year.
Here’s how HSAs work and who they make the most sense for.
Who is eligible for an HSA?
To qualify, you must be enrolled in a high-deductible health plan, which typically comes with lower monthly premiums but requires you to pay more out of pocket before insurance kicks in.
For 2026, the IRS defines a high-deductible plan as one with:
An annual deductible of at least $1,700 for self-only coverage or $3,400 for families
An annual out-of-pocket maximum of $8,500 for self-only coverage or $17,000 for family coverage
You also:
Can’t be covered by other health insurance
Can’t be enrolled in Medicare
Can’t be claimed as a dependent on someone else’s tax return
In 2024, 21 percent of workers were enrolled in HSA-eligible, high-deductible health plans through their employer, up from 14 percent a decade earlier, according to KFF, a health care research group.
After enrolling in an eligible plan, you’ll need to open the HSA itself — often through your employer or a partner financial institution. Once open, you can invest your contributions.
Importantly, your HSA is yours to keep. The funds aren’t tied to your employer, so if you switch jobs, the balance goes with you.
HSA contribution limits for 2026
Because HSAs offer robust tax advantages, the IRS caps how much you can contribute each year. The limits rise annually with inflation.
In 2026, the maximum contribution is $4,400 for self-only coverage or $8,750 for family coverage. Those 55 and older who aren’t enrolled in Medicare can put in an additional $1,000.
Those totals include both your own and any employer contributions. You can contribute up to the tax filing deadline — for tax year 2025, that’s April 2026.
What you can use your HSA for
HSA funds can be used for a wide range of medical expenses, including doctor visits, prescriptions, physical therapy, certain dental care and mental health services.
The list of eligible expenses also includes less obvious items like breast pumps, sunscreen, birth control pills and even transportation that’s essential to your care.
Insurance premiums generally don’t qualify.
Unlike Flexible Spending Accounts, which are “use it or lose it,” HSA funds roll over indefinitely. There is no deadline to use them, and they don’t disappear if you switch out of a high-deductible plan later on.
That’s why many treat HSAs as a retirement savings vehicle, investing the money and letting it grow tax-free for decades.
According to Morgan Stanley, the average retired couple, both age 65, may need about $345,000 in after-tax savings to cover health care expenses in retirement.
After age 65, you can use HSA funds for nonmedical expenses without penalty — though you’ll owe income tax on those withdrawals.
A saver who contributes the annual maximum and invests it over several decades could eventually accumulate more than $1 million, according to a recent analysis by the Employee Benefit Research Institute.
Are there downsides to an HSA?
The main drawback is that HSAs are only available to those with high-deductible health plans, which aren’t ideal for everyone. While premiums tend to be lower, you’ll pay more out of pocket before coverage begins.
For people who visit doctors often or manage chronic conditions, that could be costlier than a lower-deductible plan that isn’t HSA eligible.
You could also be subject to a 20 percent penalty if you use your HSA funds on something other than a qualified medical expense when you’re under 65.
Generally, younger, healthier individuals see the biggest upside, since they can invest early and let the funds grow. But the accounts are also most beneficial for those with spare cash to set aside — a luxury many workers don’t have.
From a broader policy standpoint, critics say HSAs disproportionately benefit high earners. The progressive Center on Budget and Policy Priorities has called them “a tax shelter masquerading as health policy.”
“A married couple making $800,000 saves 37 cents for each dollar contribution to an HSA, more than three times the 12 cents per dollar saved by a married couple making $30,000,” the CBPP wrote in a recent analysis.
