By Elizabeth O'Brien
More Americans may turn to health savings accounts as insurance premiums are set to soar next year for millions of consumers.
The accounts, known as HSAs, may be used for a variety of medical expenses, and the new tax law expanded their footprint. If you can afford to contribute to one, the payoff can be large for these powerful, tax-advantaged accounts.
Health insurance premiums are set to more than double next year, on average, for more than 20 million Americans enrolled in coverage through the Affordable Care Act. The increases are due to Republicans' failing to reach a deal on expiring premium subsidies by year end. Americans who get their insurance through work face lower but still significant premium hikes in the high-single digits for 2026.
To cope, more consumers are likely to enroll in high-deductible plans that are eligible for HSAs. High-deductible plans involve a trade-off: they cost less in terms of monthly premiums but require members to pay a higher portion of costs out of pocket until the deductible is reached.
For 2026, the minimum deductible to be classified as a high-deductible health plan is $1,700 for self-only coverage and $3,400 for a family, but it can be far more in Affordable Care Act plans. The average deductible for an individual bronze plan -- a coverage tier that requires members to pay a higher portion of their costs than a gold or silver plan -- will be $7,476 in 2026, according to KFF, a health policy nonprofit.
That is a huge outlay, especially on top of higher premiums. HSAs can soften the blow. Money is contributed tax-free and, as such, reduces your taxable income for the year. It also grows tax-free and can be withdrawn tax-free to pay for qualifying medical expenses now or in retirement. The maximum contribution allowed for 2026 is $4,400 for individual coverage and $8,750 for family coverage. Account owners 55 and over are allowed an additional $1,000 in catch-up contributions.
The idea is that HSA owners build up enough of a balance to at least cover their deductible and other health costs. If you're switching from a lower-deductible plan to a higher-deductible plan, one strategy is to contribute your premium savings each month into your HSA. For example, if the new plan saves you $200 a month in premiums, set up a direct deposit for that amount into your HSA. (Workers who have an HSA through their job can set up automatic payroll deductions.)
If the money isn't needed to cover healthcare expenses, it can continue to grow through retirement. Keep one caveat to keep in mind: You can no longer contribute to an HSA once you go on Medicare at age 65, but you can continue to tap HSA funds for expenses ranging from certain Medicare premiums to dental work to walkers.
HSA money can be invested in the stock market. You could invest in individual stocks or a fund that covers the entire market; a low-cost option would be an exchange-traded fund like the Vanguard Total Stock Market.
The One Big Beautiful Bill Act expanded HSA eligibility by making bronze and catastrophic-tier coverage through the Affordable Care Act eligible for health savings accounts. The Trump administration subsequently expanded eligibility for catastrophic plans. The White House estimated that these changes will make 10 million Americans newly eligible for HSAs.
Last week, the Internal Revenue Service further expanded the universe of HSA-eligible plans to include bronze and catastrophic plans purchased outside of the ACA marketplaces, as long as the same plan is available through the marketplace.
Despite the increased access, many Americans don't have leeway in their budgets to take full advantage of HSAs. Around a third couldn't pay off an unexpected $500 in healthcare out-of-pocket costs, according to a recent survey from the Nationwide Retirement Institute. Skyrocketing premiums will only add to the strain.
To the extent that consumers are able to contribute to an HSA, they may need to withdraw that money to pay medical bills in the near term. But that is still a good deal. "Even if you're spending out of an HSA, you're doing that on a tax-advantaged basis," says Scott Cutler, CEO of HealthEquity, a benefits administrator.
Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 18, 2025 12:20 ET (17:20 GMT)
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