Why an HSA May Be the Best-Kept Investment Secret for High Earners
It’s open enrollment season in the U.S. If you’re interested in investing more in 2027, you may want to pay special attention to two of the acronyms you may see in your health insurance benefits: HDHP, also known as a high-deductible health plan, and its investing counterpart, the HSA, or health savings account.
This post will break down why a high-deductible health plan with an HSA might be the most powerful, yet underutilized, investment tool for high-earners.
Important health insurance terminology
Before we dive into what an HSA is and why it's such a powerful savings tool, we need to do a quick refresher on some American health insurance lingo:
Deductible: This is what you pay for care before your insurance coverage starts to cover some of the cost.
Co-pay: The flat rate responsibility you have as a patient for receiving a particular medical service. For instance, if your health insurance plan has a co-pay of $50 for specialist visits, that means when you visit a specialist doctor, such as dermatologist or cardiologist, you pay $50 for that visit, regardless of what the doctor actually charges your insurance company.
Coinsurance: The percentage of the medical service cost that is your responsibility as a patient. For instance, let’s say for that same specialist visit, your doctor bills your insurance $500. If you have a plan with 20% coinsurance, you are responsible for 20% of the $500 bill, or $100 for the visit.
Premium: The amount per month that you pay for your medical insurance, whether you use it or not. If you get your insurance through work, the premium is usually taken out of your paycheck automatically.
Out-of-pocket maximum: This is the maximum amount you’ll pay in any given year for using your health insurance for covered care.
High-deductible health plan basics
As you might suspect based on their name, high-deductible health plans are health insurance plans that typically have a high deductible. Remember: The deductible is what you pay for care before your plan starts to cover some of the costs.
But what makes these plans unique is that they need to follow very strict rules set by the federal government. Importantly, a high-deductible health plan cannot pay for any non-preventive medical services, such as prescription drugs or doctor visits, until you hit your deductible for the year.
The government also sets the range of deductibles and out-of-pocket maximums that are acceptable for high-deductible health plans.
In 2027, a high-deductible health plan must have a minimum annual deductible of at least $1,750 for an individual or $3,500 for a family, and the out-of-pocket maximum can be no more than $8,700 for an individual and $17,400 for a family.
Other types of non-high deductible health plans don’t have to follow these strict limits. They can have deductibles ranging from $0 to upwards of $24,000+ for a family, and they can pay for non-preventive medical services before the deductible is reached.
Why health savings accounts are powerful investment tools
If this post is primarily about an investment account, the health savings account, then why are we talking about health insurance at all? Because here in the U.S., my friends, our government has linked one of the most powerful tax-advantaged investment accounts to your health insurance plan.
What makes a high-deductible health plan so special is that it is the only type of health insurance plan that unlocks the ability to contribute to a health savings account. And an HSA is the one of the only triple tax-free investment accounts:
You can make income tax-free contributions.
You can earn tax-free growth on investments in the account.
And you can make tax-free withdrawals, as long as those withdrawals are used to pay for certain medical expenses.
Let’s start with tax-free contributions. Every dollar you put into an HSA is deductible on your federal income tax, even if you take the standard deduction. Employers can also contribute to your HSA on your behalf, and their contributions don’t count toward your taxable income either.
Also, unlike a flexible spending account (FSA), you don’t lose the money in your HSA if you don’t spend it, and you can choose to invest what you’ve saved in the stock market. Any earnings on your contributions in an HSA grow tax-free, similar to an IRA or a 401(k).
But unlike an IRA or 401(k), you can withdraw the money from an HSA tax-free … as long as you’re using it to pay for specific healthcare costs. That includes things like doctor visits, over-the-counter and prescription drugs, COBRA health insurance premiums if you leave your job, qualified long-term care insurance premiums, dental work, feminine hygiene products, sunscreen, and so much more.
Even better, HSA accounts have no income limits, which means if you’re a high income earner, you have one more tax-advantaged tool for long-term savings.
As you can see, an HSA is wayyy more than just a savings account.
Key Health Savings Account limitations
It’s important to note that not everyone can contribute to an HSA. You cannot contribute to an HSA if any of the following apply:
You are not enrolled in a high-deductible health plan or are covered by any other type of health insurance plan.
You enroll in Medicare.
You're married and your spouse has a regular healthcare FSA.
HSAs also have annual contribution limits. In 2027, the contribution limit is $4,500 per year for a single person and $9,000 per year for a family. If you’re at least age 55, you can contribute an extra $1,000 per year to your HSA, raising those 2027 limits of $5,500 per year for a single person and $10,000 for a family.
It’s important to note that the HSA contribution limits include both what you save and what your employer may choose to contribute. So if you’re a single person under age 55 in 2027, and your employer contributes $1,000 to HSA, you can only contribute $3,500 to the account to stay under the $4,500 maximum contribution limit.
How to know if a high-deductible health plan is right for you
As powerful as health savings accounts are, if the associated high-deductible health plan is too costly for the care you need, the savings may not be worth it.
Let’s say you’re an employee deciding between two fictional health insurance plans.
The first is a co-pay plan that is not a high-deductible health insurance plan. It actually has a $0 deductible, so your health insurance plan starts paying immediately when you get care, but it comes with costly premiums of $500 per month, or $6,000 per year. Remember: You pay your premiums regardless of whether you use your insurance or not. So even if you never see a doctor in 2027, you’re still spending $6,000 per year on your health insurance.
The other plan you have access to is a high-deductible health plan. It has a deductible of $7,000 for an individual, meaning if you use the plan for non-preventive care, you’ll pay up to $7,000 before your insurance starts paying anything at all. The trade off is that your employer is covering the full cost of the plan premium, so your portion of the health insurance premium is $0. So if you never see a doctor, you’ll spend $0 on health insurance for the year.
If you really never use your health insurance and you have enough savings to cover a really expensive medical year, the decision might be easy. But it gets tricker if you regularly use your health insurance. If you only see the doctor a few times a year or only take a few, cheap prescriptions, the high-deductible health plan may still be more cost effective. But if you regularly need care, take expensive medications, or need routine testing, you might be financially better off paying for the $0 deductible co-pay plan, even though the monthly premiums are more expensive.
The math is going to very much depend on how much care you expect to use in a year, how much your monthly premium is, and how high your deductible is.
Keep in mind, the results may surprise you. Even if you do need a lot of health care in a year, a high-deductible health plan may still come out ahead if your premiums for that plan are very inexpensive, and if the plan’s deductible is at the lower end of the federally mandated minimums.
The catch: HDHPs only work if you actually get the care you need
Cost isn’t the only reason why a high-deductible health plan might not be right for you.
The reality is that high-deductible health plans exist to put a barrier in between you and the care you need. These plans were designed to reduce health care costs for insurers. Numerous scientific studies have found that people with high-deductible health plans are less likely to actually get the care doctors recommend… and that’s if they show up at the doctor’s office at all.
To make a high-deductible plan work, you not only need to have the discretionary income or savings to afford large, sometimes unexpected, medical bills, but you also can’t be the type of person to let the cost of a visit, prescription, or test prevent you from visiting the doctor or getting the care you need.
Because, and I hope this isn’t a controversial take: Your health is more important than the number in an investment account. And it’s more important than potential tax savings.
The bottom line
If you know you’re the type of person who will think twice about going to the doctor when you feel sick because of the bill, even if you can afford it, then a high-deductible health plan is probably not the right choice for you.
But if you are a high earner who already has savings or extra cash flow, and you want to unlock an additional tax-advantaged investing opportunity, then a high-deductible health plan might be a really good choice. Just be sure to double check the fixed plan expenses against your expected healthcare use for next year to make sure you’re picking the best plan for you.
Want help planning around employee benefits?
I’m Theresa Pablos, a fee-only Certified Financial Planner, and I help tech employees design a life with options.
If you’re trying to understand how to make the most of your employee benefits, I can help you think it through.
Disclaimer
You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This video is intended for educational purposes only. Nothing in this video constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost. Advisory Services offered through Avise Financial Cooperative Inc, a Registered Investment Adviser with the SEC. Registration of an investment adviser does not imply a certain level of skill or training."