The Vital Role of HSAs: More Than Just a Health Care Spending Vehicle

For plan sponsors aiming to strengthen employee financial wellness while managing benefit costs, health savings accounts represent an underutilized opportunity. Far more than a payment method for medical expenses, HSAs can drive long-term financial security, tax efficiency and retirement readiness.

By elevating the role of HSAs within an organization’s benefits strategy, employers can help their workforce thrive while reinforcing a culture of smart, sustainable financial planning.

Triple Tax Advantage That’s Hard to Beat

HSAs are the only savings vehicle in the U.S. tax code offering triple tax advantages:

• Contributions: Pre-tax when made through payroll;
• Growth: Tax-free through interest or investment earnings; and
• Withdrawals: Tax-free when used for qualified medical expenses.

This trifecta makes HSAs uniquely powerful for employees and cost-effective for employers seeking to enhance benefits without additional spending.

Immediate Employee Value

• Tax savings: Every dollar contributed reduces taxable income. A family contributing the 2026 maximum of $8,750 could save more than $2,500 in taxes, depending on its bracket.
• Flexibility: HSAs can pay for a wide range of qualified expenses, including doctor visits, prescriptions, and dental, vision and mental health services.
• Portability: HSAs belong to the employee, not the employer—so balances move with them through job changes and into retirement.
• No “use it or lose it” rule: Unspent funds roll over year after year, building a long-term health care reserve.
• Ease of access: Most providers offer debit cards and mobile tools for simple spending and tracking.

Life Happens

Cindy has been investing her HSA funds, but sometimes even the best plans are interrupted. After falling and breaking her leg, she used her HSA to cover the costly medical expenses. Because her emergency occurred this February, she can “pay herself back” by redepositing those dollars by April 15, 2026—allowing her to return that money to her HSA investments for retirement.

Cindy’s example illustrates how HSAs provide both immediate protection and long-term flexibility, a rare combination in today’s benefits landscape.

HSAs as Long-Term Financial Tools

HSAs are not only for today’s doctor visits; they can also serve as stealth retirement accounts. After age 65, the holder can withdraw funds for any reason without penalty (though nonmedical withdrawals are taxed as income), making HSAs valuable retirement accounts.

Cheryl and her spouse both work full time. While they can’t max out their 401(k) contributions, they contribute enough to receive the full employer match. The couple spends over $1,000 monthly on counseling and prescriptions not fully covered by insurance. When they learned they could withdraw HSA funds for medical expenses and redeposit the money by April 15 of the following year as a “mistaken distribution,” they felt comfortable contributing more to their HSA.

This flexibility empowers employees to build savings while maintaining access to funds for current medical needs.

HSAs and Retirement Health Costs

Health care costs in retirement can be staggering. Milliman estimates that, this year, a healthy woman age 65 could spend $313,000, and a man $275,000, on medical expenses under Original Medicare with Medigap Plan G and Part D coverage. HSAs are uniquely suited to cover these costs using tax-free dollars.

When plan sponsors position HSAs as part of a broader retirement strategy, employees gain awareness and confidence.

• HSAs act as “pre-tax health care accounts” for medical, dental, vision and prescription costs in retirement.
• Some long-term account holders have grown six-figure HSAs, even exceeding $1 million.

Case in Point: Karen’s Long-Term HSA Strategy

Karen has maximized her HSA contributions every year since the program began in 2004. Over time, she has paid many out-of-pocket health care expenses but keeps detailed records and receipts. This allows her to decide later whether to reimburse herself or let her funds continue to grow.

When Karen joins Medicare, she can withdraw HSA funds tax-free to pay premiums such as Medicare Part B. When she is retired, her HSA will be her first source of tax-free dollars for qualified medical expenses. Long-term care costs, dental care and new glasses are all eligible uses—allowing Karen’s HSA to function as a flexible, tax-efficient health care reserve.

Why Fees Matter

While HSAs’ tax advantages are compelling, fees can quietly erode returns—particularly for employees who invest their balance. Plan sponsors should evaluate HSA providers with the same rigor applied to 401(k) vendors.

For example:

• A person making two annual contributions of $5,000 that earn 7% annually will see an account grow to $69,000 over 30 years with a 0.25% fee.
• The same investment with a 0.50% fee grows to only $64,000—a $5,000 difference, or half the original principal lost to fees.

That difference underscores why low-cost investment options matter. Some account holders now have six-figure HSAs, making fee efficiency increasingly critical. Alegeus benchmarking found that its WealthCare Saver investment options carry some of the lowest expense ratios in the industry.

Sponsors should evaluate:

• Fund lineup and share class;
• Expense ratio fees;
• Account maintenance fees; and
• Employee education and engagement tools.

A well-negotiated HSA program can deliver significant value with no added cost to the employer.

Strategic Considerations for Plan Sponsors

Educate Employees

Many employees confuse HSAs with FSAs—flexible spending accounts. Clear, consistent communication is essential. Employers can host webinars, include HSA education in open enrollment materials, and provide tools to calculate tax savings and long-term growth potential. Employees who understand HSAs are more likely to participate, contribute and invest.

Match Contributions, if Possible

Even modest employer contributions can encourage participation and saving. A $500 annual contribution can drive engagement and build meaningful balances.
According to Devenir, 24% of all HSA dollars contributed came from employers, averaging $927 each. Employer matches signal an investment in both financial health and workplace well-being.

Integrate HSAs Into Retirement Planning

Position HSAs alongside the 401(k) in financial wellness programs to give employees a full picture of their retirement readiness. Consider bundled education sessions or digital tools that illustrate how HSAs complement other savings vehicles.

Review Provider Performance

Ask potential HSA vendors how they innovate, measure participant outcomes, and support engagement. Benchmarking your HSA program against peers’ can reveal opportunities for improvement.

Encourage Account Consolidation

Employees who change jobs often accumulate multiple HSAs, each with monthly maintenance fees. Encouraging consolidation into a single account can reduce fees and enable investment earlier as balances grow.

Use Data to Drive Decisions

Monitor participation, contribution levels and investment rates to tailor education and communication strategies.

• If few employees invest, highlight long-term growth potential;
• If contributions lag IRS maximums, encourage higher savings; and
• Promote catch-up contributions for employees age 55 and older.

Beyond the Basics: HSAs Reflect Employer Values

HSAs are more than financial tools—they demonstrate an organization’s commitment to employee well-being. In a competitive labor market, benefits that support long-term financial health can attract and retain top talent.

HSAs also align with the principles of consumer-driven health care, empowering employees to make informed spending and saving decisions.

When strategically positioned, HSAs benefit both employers and employees. For plan sponsors, HSAs can:

• Support overall financial wellness;
• Help manage health care costs;
• Strengthen retirement readiness; and
• Deliver meaningful, tax-efficient value.

Whether employees use their HSA funds today or invest them for tomorrow, these accounts offer unmatched flexibility, control and long-term security. By elevating HSAs within a benefits strategy, employers can help their workforce build financial confidence and resilience—today and for years to come.