HSAs: The hype and headaches of a "triple tax advantage"

As a musician, Mike McKee has always been self-employed and on his own for insurance. That means going with high deductible plans. They’re less expensive each month, but leave you with bigger medical bills.

The high-cost plans also allow you to start a tax-shielded Health Savings Account or HSA. But he never has.

“The math didn’t math for me,” he said.

A provision buried in the “Big Beautiful Bill” allows more Americans to open HSAs. They’re meant to help us pay for rising out-of-pocket expenses. But HSAs are also hyped as an investment vehicle. It’s just that the “H” in HSA can also feel like it stands for “headache.”

McKee would rather save in more straightforward ways, such as retirement accounts for him and his wife or college savings for their kid. Plus, medical bills seem like “funny money.” If something catastrophic happens, you almost certainly won’t have enough and can beg for mercy — a position he’s found himself in.

“I’m so frustrated with the system that anything to do with medical savings and stuff, I’m just so turned off emotionally that I have to be really careful to be logical about it,” McKee said.

Previously, he also thought that HSAs had a use-it-or-lose-it requirement, like the similarly-named Flex Spending Accounts, or FSAs. Not so. Any money socked away in an HSA is yours for life.

With out-of-pocket costs going up constantly, more plans are eligible for HSAs, not just those deemed high deductible plans. This year, catastrophic and bronze-level plans on the federal Marketplace are HSA eligible. At this point, roughly a third of all privately insured individuals are covered by an HSA which can be used for medical bills, medications, glasses, orthodontia, and many kinds of therapy.

In terms of savings vehicles, there aren’t many better deals. HSA money goes in and comes out tax free. And if you build up a balance, you can invest it in the stock market. Those gains aren’t taxed either. It’s often called a “triple tax advantage.”

“The small share of people who do choose to invest, and it is very small, could certainly see some benefits if they keep that money in there over time,” said Michelle Long, a senior policy manager with KFF.

Of course, if you’re living paycheck to paycheck, Long said it’s virtually impossible to take advantage.

“HSAs, in this way, tend to benefit more the higher-income enrollees,” she said. “Because those are the ones who have the disposable income to set aside at the end of the month.”

Plus, people with higher incomes have more to gain from tax shielding.

Still, you don’t have to be rich to realize the benefits. But you do have to set up a special bank account, put aside the money, keep receipts and reimburse yourself as you go.

“I do think it’s worth the headache because it’s a tiny headache,” said Rachel Schreiber, a marketer and mother of two in Spring Hill, Tennessee. “It is money out of my budget that would be spent anyway. It’s tax free. And there’s the hope that it could get invested.”

But for now, the investment angle is just a hope. Even in years when she can afford to max out her HSA to the federal limit, increased to $8,750 in 2026, Schreiber and her family find a way to spend pretty much all of it.

“If I’m paying for braces, physical therapy, my kid has an accident on the wrestling mat and needs [physical therapy], imaging, orthopedic care, there goes the savings,” she said.

Schreiber is hoping to hold on to more of her HSA savings when the kids get on their own plan.

A version of this story can also be found on HealthQ from KFF and WPLN.