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HSAs Revisited: What's New, What's Changed, and How Advisors Should Be Using Them Today

Presented by Roy Ramthun

Health Savings Accounts (HSAs) have evolved from a niche employee benefit into one of the most powerful tax-advantaged planning tools available to financial advisors. Despite their growing popularity, many clients—and even many advisors—continue to underutilize HSAs, often treating them as simple reimbursement accounts rather than recognizing their potential as long-term wealth accumulation and retirement planning vehicles.

In this webinar, nationally recognized HSA expert Roy Ramthun, who played a leadership role in implementing the federal HSA program while serving at the U.S. Treasury Department, provided an in-depth update on the current HSA landscape, recent legislative changes, and practical planning strategies that advisors can use to maximize the value of HSAs for clients across different stages of life.

The presentation emphasized that HSAs remain unique among tax-advantaged accounts because they provide a triple tax benefit: tax-deductible contributions (or pre-tax payroll contributions), tax-deferred investment growth, and tax-free withdrawals when used for qualified medical expenses. Unlike Flexible Spending Accounts (FSAs), HSA balances are never forfeited and can continue growing throughout a client's lifetime.

Roy reviewed several important legislative and regulatory developments, including expanded HSA eligibility for certain Bronze and Catastrophic Marketplace health plans, permanent pre-deductible telehealth coverage, and the ability to use HSA funds to pay for qualified Direct Primary Care (DPC) arrangements beginning in 2026. He also reviewed recently announced contribution limits and High Deductible Health Plan (HDHP) thresholds for 2027.

Throughout the presentation, Roy repeatedly stressed that many clients unintentionally limit the long-term value of their HSAs by spending current balances on routine medical expenses rather than allowing those funds to remain invested for decades of tax-free growth. He encouraged advisors to position HSAs not simply as healthcare reimbursement accounts, but as a critical component of comprehensive retirement, tax, and healthcare planning.

Key Topics and Expanded Insights

The Growing Role of HSAs in Financial Planning

Health Savings Accounts continue to experience significant growth as employers increasingly adopt High Deductible Health Plans (HDHPs) and employees recognize the long-term tax advantages associated with HSAs.

Roy noted that, as of the end of 2025:

• Approximately 42 million HSA accounts were open nationwide. 
• HSA assets exceeded $170 billion. 
• Nearly one-third of Americans with private health insurance now have access to an HSA. 
• Approximately 60% of existing HSA holders opened their accounts within the previous five years, demonstrating that many participants remain relatively new to the rules and planning opportunities. 

Why This Matters

The continued expansion of HSAs creates a significant opportunity for financial advisors. While many clients already have HSA accounts through their employers, relatively few fully understand how to maximize their benefits. Advisors who educate clients about contribution strategies, investing HSA balances, Medicare coordination, and long-term reimbursement planning can add considerable value beyond traditional investment management.

Planning Opportunity

Rather than discussing HSAs only during annual benefits enrollment, advisors should incorporate HSA reviews into annual financial planning meetings, retirement projections, and tax planning discussions.

The Triple Tax Advantage: Why HSAs Are Unique

One of the central themes of the webinar was that HSAs provide tax benefits unmatched by any other common savings vehicle.

Roy described HSAs as offering a "triple tax advantage," consisting of:

1. Tax-Deductible or Pre-Tax Contributions

Contributions made through payroll deductions generally avoid:

• Federal income tax 
• Social Security (FICA) tax 
• Medicare tax 

Individuals who contribute directly outside payroll may deduct eligible contributions on their federal income tax return even if they do not itemize deductions.

2. Tax-Free Investment Growth

Unlike taxable brokerage accounts, earnings within an HSA—including interest, dividends, and capital gains—accumulate without current federal taxation.

This allows balances to compound more efficiently over long periods.

3. Tax-Free Qualified Withdrawals

Withdrawals used for qualified medical expenses are excluded from federal income taxation.

Qualified expenses generally include:

• Physician services 
• Hospital care 
• Prescription medications 
• Dental care 
• Vision care 
• Certain long-term care expenses 
• Medicare premiums in qualifying situations after age 65 (excluding most Medigap premiums) 

Planning Implications

Because no other common savings account combines all three tax benefits simultaneously, many advisors now consider HSAs one of the most tax-efficient savings vehicles available.

For many clients, maximizing HSA contributions before making additional taxable investments may improve long-term after-tax wealth accumulation.

Understanding HSA Eligibility Rules

Roy devoted significant attention to eligibility requirements because contribution mistakes frequently occur when clients unknowingly lose HSA eligibility.

To contribute to an HSA, individuals generally must:

• Be covered by a qualified High Deductible Health Plan (HDHP). 
• Have no disqualifying health coverage. 
• Not be enrolled in Medicare. 
• Not be claimed as another person's tax dependent. 

High Deductible Health Plans

Only qualified HDHPs satisfy HSA eligibility requirements.

Although many employer-sponsored plans qualify, advisors should avoid assuming every high-deductible plan is automatically HSA eligible.

Clients should verify eligibility with their employer or insurance provider.

Partial-Year Eligibility

Roy explained that contribution limits are generally prorated when individuals are HSA eligible for only part of the calendar year.

However, the "last-month rule" may allow full-year contributions if eligibility exists on December 1 and certain testing requirements are satisfied.

Because violating the testing period can trigger additional taxes, advisors should carefully evaluate partial-year eligibility situations.

Common Planning Mistake

Clients frequently continue contributing after losing eligibility due to Medicare enrollment or other disqualifying coverage.

Excess contributions may result in excise taxes unless corrected timely.

Contribution Strategies and Annual Limits

Roy reviewed recently announced inflation-adjusted HSA contribution limits.

For 2027, contribution limits increase modestly from the prior year.

Annual limits apply separately for:

• Self-only HDHP coverage 
• Family HDHP coverage 

Individuals age 55 and older remain eligible to make an additional $1,000 catch-up contribution annually.

Employer Contributions

Employer contributions count toward the annual contribution limit.

However, employer contributions generally remain excluded from employees' taxable income.

Payroll Contributions vs. Direct Contributions

Roy encouraged employees to contribute through payroll whenever possible.

Payroll contributions generally avoid:

• Federal income taxes 
• Social Security taxes 
• Medicare taxes 

Direct contributions remain deductible for federal income tax purposes but do not reduce payroll taxes.

Planning Opportunity

For employed clients with available payroll deductions, maximizing payroll HSA contributions often produces greater tax savings than making equivalent after-tax contributions later.

HSAs as Long-Term Investment Accounts

One of Roy's strongest messages involved changing how clients think about HSAs.

Too often, clients use HSA balances much like checking accounts by contributing funds and immediately spending them on routine healthcare expenses.

Roy argued that this approach significantly limits the long-term value of HSAs.

Investing Rather Than Spending

Instead, advisors should encourage clients who have adequate emergency reserves and sufficient cash flow to:

• Pay current medical expenses out of pocket. 
• Leave HSA balances invested. 
• Allow decades of tax-free compounding. 
• Preserve receipts for future reimbursement. 

Investment Options

Most HSA custodians offer investment options similar to retirement accounts, including:

• Mutual funds 
• Exchange-traded funds (ETFs) 
• Individual stocks (where available) 
• Bonds 
• Target-date funds 
• Money market funds 

The specific investment menu varies by HSA custodian.

Why Investing Matters

Healthcare expenses typically increase during retirement.

Allowing HSA assets to compound over many years may create a dedicated tax-free healthcare reserve that reduces pressure on traditional retirement accounts.

Practical Advisor Takeaway

Clients should periodically review whether excessive cash remains idle within HSAs.

Many HSA custodians require maintaining a minimum cash balance before allowing investments, but balances exceeding near-term spending needs may benefit from long-term investment.

Recent Legislative and Regulatory Changes

Roy highlighted several important legislative developments that expand HSA planning opportunities.

Bronze and Catastrophic Marketplace Plans

Beginning January 1, 2026, certain Bronze and Catastrophic health plans offered through the individual marketplace became eligible for HSA participation if they otherwise satisfy HDHP requirements.

Planning Implication

Individuals purchasing Marketplace coverage may have broader HSA eligibility than under prior law.

Permanent Telehealth Relief

Congress permanently extended the ability of qualifying HDHPs to provide first-dollar telehealth coverage without jeopardizing HSA eligibility.

Why This Matters

Previously, temporary pandemic-related relief required repeated legislative extensions.

Permanent treatment provides greater certainty for employers, insurers, and HSA participants.

Direct Primary Care (DPC)

Roy discussed new rules allowing HSA funds to pay qualifying Direct Primary Care membership fees, subject to statutory monthly limits.

Planning Opportunity

Clients using DPC arrangements may now integrate those monthly fees into their HSA reimbursement strategy.

Advisors should verify current IRS guidance and applicable dollar limitations annually.

Medicare Enrollment and HSA Planning

Medicare planning remains one of the most misunderstood HSA topics.

Roy emphasized that individuals generally cannot make HSA contributions once enrolled in any part of Medicare, including premium-free Medicare Part A.

Social Security Interaction

Clients who begin receiving Social Security retirement benefits after age 65 are typically automatically enrolled retroactively in Medicare Part A.

This retroactive enrollment can unexpectedly create excess HSA contributions if payroll deductions continue.

Advisor Planning Considerations

Clients approaching age 65 should evaluate:

• Desired Medicare enrollment date. 
• Planned retirement date. 
• Social Security claiming strategy. 
• Final HSA contribution timing. 

Proper coordination may prevent excess contributions and unnecessary penalties.

Retirement Planning Applications: Positioning HSAs Beyond Healthcare

One of the strongest themes of the webinar was that advisors should stop thinking of Health Savings Accounts solely as healthcare reimbursement vehicles and begin positioning them as an integral part of long-term retirement planning.

Roy emphasized that healthcare represents one of the largest and most uncertain retirement expenses clients will face. Fidelity estimates that a typical 65-year-old couple retiring today may need hundreds of thousands of dollars over retirement to cover healthcare expenses not reimbursed by Medicare. An HSA provides one of the few opportunities to accumulate assets specifically earmarked for these costs while receiving favorable tax treatment throughout the accumulation period.

Unlike traditional retirement accounts, qualified HSA withdrawals remain tax-free regardless of the account owner's age when used for eligible medical expenses.

Positioning HSAs by Client Stage

Roy encouraged advisors to frame HSAs differently depending on the client's stage of life.

Young professionals

• Establish healthy savings habits early. 
• Maximize payroll contributions whenever possible. 
• Begin investing HSA balances rather than maintaining excessive cash. 
• Allow decades of tax-free compounding. 

Mid-career professionals

• Coordinate HSA contributions with retirement savings. 
• Continue paying routine medical expenses from cash flow when feasible. 
• Build substantial healthcare reserves for retirement. 

Pre-retirees

• Maximize annual contributions. 
• Carefully coordinate Medicare enrollment. 
• Develop reimbursement strategies for retirement healthcare expenses. 

Retirees

• Use accumulated HSA balances strategically to reduce taxable retirement withdrawals. 
• Coordinate HSA withdrawals with Medicare premiums and qualified medical expenses. 
• Preserve tax-efficient retirement income. 

Planning Opportunity

For many clients, maximizing HSA contributions may provide greater long-term tax benefits than directing additional savings into taxable investment accounts once employer retirement plan matching opportunities have been fully utilized.

Paying Medical Expenses Out of Pocket: A Long-Term Wealth Strategy

Perhaps the most practical planning recommendation throughout the presentation involved encouraging clients to pay current medical expenses from taxable assets rather than immediately using HSA funds.

Roy acknowledged that this strategy is not appropriate for every client. Individuals struggling with cash flow should absolutely use HSA assets as intended.

However, clients who can comfortably pay current healthcare expenses out of pocket may benefit substantially by allowing HSA investments to continue growing tax-free.

Why This Strategy Works

Qualified medical expenses incurred after an HSA is established may generally be reimbursed years—or even decades—later, provided the account owner maintains appropriate documentation.

This creates remarkable planning flexibility.

For example:

• A client incurs a $2,500 medical expense at age 45. 
• They pay the bill using personal funds. 
• The receipt is retained. 
• The HSA remains invested for twenty years. 
• At retirement, the client may reimburse themselves for that original $2,500 expense tax-free while allowing years of investment growth to accumulate inside the account. 

Documentation Matters

Roy repeatedly emphasized the importance of maintaining:

• Medical receipts 
• Explanation of Benefits (EOBs) 
• Pharmacy records 
• Payment confirmations 

Good recordkeeping becomes essential should the IRS ever question qualified distributions.

Medicare Planning and Avoiding Contribution Mistakes

One of the most common advisor errors discussed during the webinar involves misunderstanding the interaction between Medicare enrollment and HSA eligibility.

Medicare Ends Contribution Eligibility

Once an individual enrolls in any part of Medicare, including premium-free Part A, they generally become ineligible to make new HSA contributions.

Many clients mistakenly assume they can continue contributing after enrolling.

Social Security Creates Additional Complexity

Roy explained that individuals who claim Social Security after age 65 are generally enrolled retroactively into Medicare Part A for up to six months (but not before first becoming eligible).

This retroactive enrollment can unexpectedly create excess HSA contributions if payroll deductions continue during that period.

Advisor Planning Tips

When working with clients approaching age 65:

• Discuss expected retirement timing. 
• Coordinate Social Security claiming decisions. 
• Evaluate Medicare enrollment dates. 
• Stop payroll HSA contributions before Medicare eligibility begins. 

Proper coordination may help clients avoid corrective distributions and associated tax reporting.

Common Advisor Mistakes and Client Misconceptions

Throughout the session, Roy highlighted several mistakes he encounters repeatedly.

Mistake #1: Treating HSAs Like Flexible Spending Accounts

Many clients continue behaving as though HSAs have "use-it-or-lose-it" rules similar to FSAs.

Roy reminded attendees that:

• HSA balances remain with the owner indefinitely. 
• Unused balances carry forward every year. 
• Investment earnings continue accumulating tax-free. 

Mistake #2: Leaving Large Cash Balances Uninvested

Many HSA participants accumulate substantial cash balances earning little or no return.

While maintaining liquidity for expected expenses is appropriate, excess balances may benefit from long-term investment.

Mistake #3: Missing Employer Contributions

Some employees fail to contribute enough to receive the full employer contribution or matching amount.

Advisors should review employer benefit structures annually.

Mistake #4: Continuing Contributions After Medicare Enrollment

This remains one of the most frequent compliance mistakes.

Annual reviews with clients approaching Medicare eligibility can help prevent excess contributions.

Mistake #5: Poor Beneficiary Planning

Beneficiary designations often receive far less attention than retirement accounts.

Roy emphasized that failing to review HSA beneficiaries may create unnecessary taxation and administrative complications.

Beneficiary Designations and Estate Planning

Although HSAs primarily function as healthcare savings vehicles, they also raise important estate planning considerations.

Naming a Spouse

When a spouse is named as the beneficiary:

• The HSA generally becomes the surviving spouse's HSA. 
• The account retains its tax-advantaged status. 
• The surviving spouse may continue using funds for qualified medical expenses. 

This is typically the most tax-efficient outcome.

Naming a Non-Spouse Beneficiary

If someone other than a spouse inherits the account:

• The HSA generally ceases to exist as an HSA. 
• The fair market value becomes taxable income to the beneficiary in the year of death, reduced by qualified medical expenses paid within the permitted period after death. 

Estate Planning Opportunity

Advisors should review beneficiary designations during:

• Estate plan reviews 
• Retirement planning meetings 
• Annual account updates 
• Major life events 

Keeping beneficiary designations current helps ensure assets transfer according to the client's intentions.

HSAs and Long-Term Care Planning

Another valuable planning application discussed involved long-term care expenses.

HSAs may generally be used tax-free for many qualified long-term care expenses, including:

• Qualified long-term care insurance premiums (subject to age-based annual IRS limits)  
• Certain home healthcare services 
• Skilled nursing services 
• Other qualified medical costs 

Planning Implications

As healthcare expenses often rise dramatically later in retirement, accumulated HSA balances may help reduce reliance on taxable retirement withdrawals.

Advisors should evaluate how HSAs integrate with broader long-term care planning strategies.

Integrating HSAs into Comprehensive Financial Planning

Roy emphasized that HSAs should rarely be discussed in isolation.

Instead, advisors should coordinate HSA planning alongside:

• Retirement income planning 
• Roth conversion strategies 
• Medicare planning 
• Tax planning 
• Cash flow management 
• Insurance planning 
• Estate planning 

This integrated approach helps maximize the overall value of the HSA rather than treating it as a stand-alone benefit.

Practical Advisor Takeaways

Roy concluded the webinar with numerous practical recommendations for advisors.

Annual Client Review Checklist

Review each client's:

• HSA eligibility. 
• Contribution amount. 
• Employer contribution. 
• Investment allocation. 
• Cash balance. 
• Beneficiary designation. 
• Medicare timeline. 
• Recordkeeping procedures. 
• Long-term reimbursement strategy. 

Client Education Priorities

Help clients understand:

• HSAs are long-term savings vehicles. 
• Triple tax advantages make HSAs unique. 
• Investing balances often creates greater long-term value. 
• Medical receipts should be retained. 
• Medicare enrollment affects contribution eligibility. 
• Beneficiary designations matter. 
• Healthcare planning is retirement planning. 

Frequently Overlooked Planning Opportunities

Roy identified several opportunities that advisors often miss:

• Coordinating HSA contributions with retirement savings goals. 
• Encouraging payroll contributions to maximize FICA tax savings. 
• Investing HSA balances rather than maintaining unnecessary cash. 
• Delaying reimbursement to maximize tax-free compounding. 
• Reviewing Marketplace plan eligibility after recent legislative changes. 
• Coordinating Medicare enrollment with contribution timing. 
• Using HSA assets strategically to offset retirement healthcare costs. 
• Reviewing beneficiary designations during every estate planning update. 

External Reference Sources

Internal Revenue Service – Health Savings Accounts (HSAs)
https://www.irs.gov/publications/p969

Internal Revenue Service – Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans
https://www.irs.gov/forms-pubs/about-publication-969

Internal Revenue Service – Publication 502: Medical and Dental Expenses
https://www.irs.gov/forms-pubs/about-publication-502

Internal Revenue Service – Instructions for Form 8889 (Health Savings Accounts)
https://www.irs.gov/forms-pubs/about-form-8889

Internal Revenue Service – Revenue Procedures (Annual HSA Contribution Limits)
https://www.irs.gov

Centers for Medicare & Medicaid Services – Medicare Enrollment Information
https://www.medicare.gov

Social Security Administration – Medicare Enrollment and Social Security Benefits
https://www.ssa.gov/medicare

U.S. Department of the Treasury – Health Savings Accounts Guidance
https://home.treasury.gov

Fidelity Investments – Retiree Health Care Cost Estimate (updated annually)
https://www.fidelity.com/viewpoints/retirement/plan-for-rising-health-care-costs

HealthSavings Administrators – HSA Educational Resources
https://healthsavings.com

Overall Advisor Takeaway

Roy Ramthun's central message was that Health Savings Accounts have evolved into one of the most versatile and tax-efficient planning tools available to financial advisors. Clients who understand HSA rules—and advisors who proactively integrate HSAs into tax planning, retirement income strategies, Medicare coordination, estate planning, and long-term care planning—can often realize substantially greater long-term value than those who simply use HSAs as short-term reimbursement accounts. By educating clients on contribution strategies, investing for long-term growth, preserving receipts, coordinating Medicare enrollment, and maintaining appropriate beneficiary designations, advisors can help transform an often-overlooked employee benefit into a cornerstone of comprehensive financial planning.