Health Savings Account for 2026? Why I Love My HSA

 A High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA) can dramatically lower your net annual health costs and build a powerful, triple-tax-advantaged pool for future expenses like Medicare premiums and long-term care. If you’re generally healthy, have an emergency fund, and qualify under IRS rules, an HSA can function like a “medical IRA” for both your working years and retirement.

As someone who writes a lot of personal finance material, I try to not repeat topics…except for this one. With Federal Benefits Open Season right around the corner (November 10 – December 8) I would be flat out wrong to not write about one of my favorite accounts, the Health Savings Account (HSA).

Before we dive into the nitty gritty of the Health Savings Accounts (HSA) and why I love them, it’s important to know that I’m simply talking numbers – the nerdy spreadsheet stuff. The decision you make regarding your family’s health insurance needs to encompass a lot more than just the numbers. Life is not a spreadsheet. Even decisions that appear to be clear winners on paper, may not end up being the right decision.

Please compare plans using this free OPM tool and understand what the plans do/do not offer. If you have certain prescriptions, a planned surgery, or any special circumstance, call the plan provider and ask them about your responsibility versus their coverage.

ATTN: Soon-To-Be Retirees

There is a rumor that just won’t go away. This one is almost as prevalent as bats being blind, camels storing water in their humps, and knuckle cracking causing arthritis. You absolutely, 100%, can undoubtedly change your FEHB coverage during your last 5 working years. For some reason, people have spread the myth that you must be covered by the same FEHB plan for 5-years before retirement. This is not true.

Don’t believe me? Let’s ask OPM. This is directly from the OPM website:

“To continue your health benefits enrollment into retirement, you must:

(1) Have retired on an immediate annuity (that is, an annuity which begins to accrue no later than one month after the date of your final separation); and

(2) Have been continuously enrolled (or covered as a family member) in any FEHB Program plan (not necessarily the same plan) for the five years of service immediately preceding retirement, or if less than five years, for all service since your first opportunity to enroll.”

HSA Benefits

The HDHP is your insurance coverage while the HSA is an added feature. With this combination, premiums tend to be less expensive since more of the out-of-pocket (OOP) burden is on you. While this may sound like a downside, for those with few healthcare expenses, their net annual costs can be minimal. I’ll compare the net annual cost of three plans below.

On top of having insurance coverage, the HDHP with an HSA provides:

1. Premium Pass-Through (PPT): This is where part of your bi-weekly premium is returned to you via a deposit in your HSA account. This money can be invested, saved in cash, or spent on medical expenses. For 2026, the GEHA HDHP offers $1,000 PPT for self-only plans ($83.33 per month) and $2,000 for self plus one and family plans ($166.66 per month).
2. HSA contributions are pre-tax, meaning they reduce your federal taxable income and also your state taxable income (except for CA & NJ).
3. HSA contributions made via payroll deduction are not subject to FICA/payroll tax, saving you an additional 7.65%.
4. Your contributions can be invested in a variety of investments, just like an IRA, which is why some people call an HSA a “Medical IRA”.
5. HSA dollars grow tax-free (just like Roth TSP, Roth IRA, Roth 401(k), etc.).
6. HSAs are Portable! This account (and the money held in it) is yours for life, even if you leave your job, retire, or change to a health insurance plan that’s not HSA eligible.
7. Unlimited carryforward to the next year. There is no “use or lose” like with an FSA.
8. No income restrictions to contribute. For example, if you make $1 million, you can contribute to an HSA (if you meet the 4 eligibility points explained below).
9. No income requirements to contribute. If you make $0, you can contribute to an HSA (if you meet the 4 eligibility points explained below).
10. No Required Minimum Distributions (RMDs). RMDs are forced distributions from pre-tax/traditional accounts when you reach a certain age. For anyone born in 1960 or later, their RMD age is 75. This means distributions will be required from your traditional TSP, traditional IRA, traditional 401(k), etc.
11. HSA distributions are tax and penalty-free if used for qualified medical expenses (there are a ton of things that qualify).
12. Distributions are tax and penalty-free to reimburse yourself for medical expenses that were paid out-of-pocket (OOP) at any time after you established your HSA.
13. Once you reach age 65, distributions are penalty-free even if not used for qualified medical expenses (however, ordinary income tax will apply if the distribution is for non-medical expenses).

HSA Eligibility

In order to contribute to an HSA, you must meet the IRS eligibility:

1. You must be covered by a High Deductible Health Plan (HDHP)
2. You cannot have other health insurance coverage
3. You cannot be enrolled in Medicare
4. You cannot be claimed as a dependent on someone else’s tax return

That’s it!

Source: IRS Publication 969

What if I retire? What if I’m already retired? What if I change states? What I’m abducted by aliens? What if a solar eclipse occurs during a waxing gibbous moon phase? None of those things matter (for HSA purposes). If you meet the four criteria above, you can contribute to an HSA. I know many federal retirees who have crossed the finish line, aren’t working a post-retirement job, and still contribute to their HSA (earned income is not a requirement).

What if you ARE NOT covered by a High-Deductible Health Plan anymore?

The HSA is yours to keep and use as you see fit. Just because you don’t have HDHP coverage doesn’t mean your HSA goes away. The dollars in that account are still yours and can still be used for the same purposes (qualified medical expenses and for any reason upon reaching age 65).

What if my spouse has their own non-HDHP insurance through their employer?

That’s okay. As long as (1) YOU are covered by an HDHP and (2) your spouse’s non-HDHP plan DOES NOT cover you, you’re still eligible and can contribute up to the family limit. This one can get confusing, so here’s the exact language from the IRS.

Source: IRS Publication 969

Who Do I Think an HSA is Best For?

Those who are generally healthy, have an emergency fund, and want to save/invest more in a tax-free account.

Net Annual Cost

This one requires a visual. Nobody likes the sound of “high-deductible” …it sounds expensive. Just like with any type of insurance, the deductible is the amount you pay out-of-pocket before plan benefits kick-in. Let’s look at three FEHB plans for 2026 and their deductibles.

GEHA HDHP Self (Plan #341): $1,800 deductible

Blue Cross Blue Shield (BCBS) Basic (Plan #111): $0 deductible

Blue Cross Blue Shield (BCBS) Standard (Plan #104): $350 deductible

Yikes! Look at the $1,800 deductible for the HDHP plan versus the $0 deductible for BCBS Basic. If we only cared about the deductible, it appears that BCBS Basic would be the winner. But what about the net annual cost? In order to find out the net annual cost, we need to look at the bi-weekly premiums coming out of each paycheck, any premium amount returned, and any possible tax benefits.

What if you want to use the HSA but don’t want to invest the $3,400 additional? Even with hitting the annual $1,800 deductible, you’d still be spending less on a net basis than some other plans, just based on the bi-weekly premium savings and premium pass-through.

Now we have a clearer picture of the true cost, even if we have to pay the full annual deductible, the bi-weekly premium savings alone may be enough to make you consider an HDHP. But don’t forget, the real magic with the HSA is investing your contribution plus the premium pass-through.

No federal tax on the way in.

No payroll tax on the way in.

No tax along the way as it compounds.

No tax on the way out if used for qualified medical expenses. Again, there are a ton of things that qualify as QME, to include Medicare premiums. We’re all going to get old someday. Don’t wait until you’re old to figure out how you’re going to take care of your old self.

There is no other account in existence that offers the same benefits.

Is an HSA the Same as an FSA?

No! Both Flexible Spending Accounts (FSA) and HSAs allow for the use of pre-tax dollars to pay for qualified medical expenses. However, the HSA has additional benefits that an FSA does not have. Also, look at the name. One is geared towards SPENDING and the other is focused on SAVING.

Qualified Medical Expenses

QMEs include items far beyond just typical doctor’s office visits and prescriptions. HSA funds can be used to buy cold medicine, pain reliever, sleep aids, allergy medication, over-the-counter drugs, certain skincare products, heartburn tablets, band-aids, sunscreen, contraceptives, prescriptions, after-sun aloe, certain face wash, etc. If you have a family plan, expenses incurred for you, your spouse, and dependents are all eligible.

Breaking it Down – My Use of the HSA in 2025

1. I was covered by the FEHB Plan #341 (GEHA HDHP).
2. I paid bi-weekly health insurance premiums of $76.27.
3. Every month, I received a deposit of $83.33 in my HSA Bank account. This amount represents the $1,000 (self-only) premium pass-through (PPT) feature where a portion of my premium was returned to me. PPT in 2026 for self-only will remain $1,000 and for family plans will be $2,000.
4. Since the total 2025 HSA contribution limit was $4,300 for self-only, and the $1,000 PPT counts towards the IRS limit, I contributed the remaining allowable amount ($3,300) from my paycheck throughout the year. This $3,300 worth of personal HSA contributions was not subject to payroll tax and it reduced my taxable income. Contributions went straight from my paycheck to the custodian, HSA Bank.
5. When the $83.33 PPT and my $3,300 personal contributions hit my HSA Bank account, they automatically got invested in a low-cost passive index fund (not an investment recommendation). This money is now invested and will grow tax-free, similar to a Roth IRA, but better since those are pre-tax dollars going in. Note: you don’t have to invest your HSA money, you could leave the HSA dollars in cash and use your HSA debit card to pay for QMEs.
6. When I had medical expenses throughout the year, I paid OOP, recorded it on a spreadsheet, and saved a picture of the receipt in a cloud folder. I can reimburse myself for these expenses at any time, even if it’s 20-years from now and I’m no longer a government employee and not covered by an HSA eligible plan. The HSA money is mine to use for medical expenses, reimburse myself for expenses paid OOP, or use for anything after age 65 without penalty.

HSA Bank & HSA Invest

Your personal contributions can go to any HSA custodian, or be rolled over from HSA Bank to a different custodian (Fidelity, Lively, etc.). However, with the FEHB GEHA plan, the $1,000/$2,000 PPT will always be sent to HSA Bank first. You can then choose to keep the money in that account and invest it via HSA Invest, or move it to an outside HSA custodian.

I personally have only used HSA Bank and their brokerage account platform HSA Invest. Why? I prefer to keep my financial life as simple as possible and I haven’t been charged any account fees (just the regular expense ratio fee associated with the index fund I invest in). I have one login and all of my HSA dollars under one roof. This works for me. No need to mess around with electronic transfers or a rollover.

As of now, there are no fees to use HSA Invest for GEHA members who choose their own investments (the “Choice” option).

There are three options with HSA Invest.

1. Choice: For those who are comfortable picking their own investments. The website lists this option as having a 0.10% fee, but GEHA members pay 0.00% fee.
2. Select: If you want guidance and a recommended list of funds to invest in, you can use the “Select” option which costs 0.25% annually.
3. Managed: If you want your investments managed by an investment advisory firm, you can pay them 0.35% annually.

According to their website, if you have a “Managed” or “Select” account with a cash balance of $7,500 or more, the fees will be waived for that quarter.

Let’s talk fees in terms of dollars. The fee listed is the percentage that will be charged for each dollar in your account. So, if you have $10,000 in your HSA and pick the “Select” option, which charges 0.25%, you would pay $25 for the year (10000 x .0025), billed $6.25 quarterly.

I’ve been using HSA Invest since the rollout and have had no issues. I transferred my money back from Charles Schwab to HSA Bank, enrolled in HSA Invest, selected the one mutual fund I want to invest in, and set up automatic investing for every contribution and PPT deposit. Having HSA Invest versus Charles Schwab results in one less log-in for me to keep track of, keeps my financial life simple, and has cost me $0.

How Much Can You Invest in 2026

$4,400 for self-only plans and $8,750 for family plans. Individuals who will turn 55 in calendar year 2026 can contribute an additional $1,000 catch-up. For spouses with family coverage, each spouse can contribute an additional $1,000 to their individual HSA account. Remember, these contribution amounts are reduced by the PPT.

Preventative Care

Please don’t ignore your health because you’re worried about OOP costs. With the HDHP, things like annual physical exams, routine screenings, immunizations, two dental cleanings, and other preventative care treatments are generally covered by insurance before hitting your deductible, without any cost sharing, coinsurance, or copays.

HDHP Costs

If your goal is to have the absolute least amount of OOP expense, an HDHP is probably not the right fit. Everyone’s health situation and medical needs are different. Even someone in great health may not want to roll the dice on the possibility of paying OOP regardless of the lower premiums, tax savings, and investment feature. However, make sure you do your homework using the OPM FEHB plan comparison tool. There may be plans that are not HDHP, but still have high deductibles close to the HDHP level, without any of the HDHP/HSA benefits. Don’t forget to look at your net annual cost. Once you factor in the HDHP’s $1,000/$2,000 PPT, lower bi-weekly premiums, and tax savings, your non-HDHP plan could cost you more than the HDHP.

Deductible

This is the amount you pay out-of-pocket before plan benefits begin. The 2026 GEHA HDHP in-network deductible is $1,800 for self-only and $3,600 for self plus one and family coverage.

Coinsurance

Coinsurance kicks in after you’ve met your deductible. Primary care office visits, labs, x-rays, emergency room visits, and specialists have a 5% coinsurance if in-network. If you visit the doctor’s office and the bill is $100, but the in-network provider has an agreement with GEHA to accept $80 as the allowable amount, you’ll pay $80 if you haven’t met your deductible yet. This $80 will be applied towards your annual deductible. If you have met your annual deductible ($1,800/$3,600) and the coinsurance is 5% of the allowable amount, you would pay $4.

Prescriptions

You’ll most likely pay between 25% – 40% coinsurance with in-network providers. See the Summary of Benefits and Coverage for full details.

Maximum Out-of-Pocket/Catastrophic Protection

This is the maximum you’ll pay for coinsurance, co-pays, and deductibles (medical care and prescriptions) combined before insurance pays 100% of covered services. The in-network 2026 OOP maximum is $6,000 for self-only and $12,000 for family coverage. Out of network is $8,500 and $17,000. Remember, this catastrophic limit is for coinsurance, co-pays, and deductibles combined. Insurance will still kick-in once you reach your annual $1,800/$3,600 deductible.

What If I Withdraw HSA Money Before Age 65 for Non-Medical Purposes?

Generally, this will cost you ordinary income tax and a 20% penalty.

What If I Don’t Want to Invest the Money?

You don’t have to. You can still come out ahead by paying for QMEs with dollars that were never taxed. This approach would be similar to an FSA.

What If I’m Not Healthy?

HDHPs may actually protect you if you reach your “catastrophic limit” for the year. While this is a highly personal decision, it’s important to know that most traditional insurance policies won’t exclude co-pays and drug costs after hitting the annual catastrophic limit. This means that with a traditional plan, you could pay your catastrophic limit and still be on the hook for co-pays and prescriptions. On the other hand, OPM states that, “With an HDHP, once you hit the catastrophic limit, there is no out-of-pocket expense for covered in-network services.”

Source: OPM

What If I’m Too Healthy? Medicare Part B

While you may be a top-notch physical specimen today, it’s unlikely that you’ll never need money for any QME. Remember, you can always reimburse yourself at any time in the future for those every day common QMEs. And what about Medicare Part B? Many feds who have FEHB coverage and Medicare Part B in retirement report no additional out-of-pocket costs above their monthly premiums.

How much will you need to have saved/invested to comfortably pay for Part B? From 1966-2017, Medicare Part B premiums increased approximately 7.7% on a compound annualized basis.

2023 Part B Premium: $164.90

2024 Part B Premium: $174.70 (5.9% increase)

2025 Part B Premium: $185.00 (5.9% increase)

2026 Part B Premium: $206.50 (11.6% increase)

Let’s be optimistic for a moment and say the Part B premium will only increase by 5% each year going forward.

If this happens, what would Part B premiums look like at age 65 for the individuals still working today?

• 50-year-old in 2026 would pay $429.30 at age 65 (year 2041), totaling $5,151.58 for the year.
  If increases continued at 5% annually and they lived until age 85, Part B premiums over their lifetime would cost $184,010.73.
• 40-year-old in 2026 would pay $699.28 at age 65 (year 2051), totaling $8,391.39 for the year.
  If increases continued at 5% annually and they lived until age 85, Part B premiums over their lifetime would cost $299,734.08.
• 30-year-old in 2026 would pay $1,139.06 at age 65 (year 2061), totaling $13,668.69 for the year.
  If increases continued at 5% annually and they lived until age 85, Part B premiums over their lifetime would cost $488,235.24.
• 20-year-old in 2026 would pay $1,855.40 at age 65 (year 2071), totaling $22,264.85 for the year.
  If increases continued at 5% annually and they lived until age 85, Part B premiums over their lifetime would cost $795,283.76.

A caveat with these numbers. We’re assuming a constant 5% annual increase, which is unlikely. Some years may be less, some may be more. We’re also assuming you get no subsidies, reimbursements, or incentive payments.

Finally, we haven’t factored in any Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an additional tax/surcharge on your Medicare Part B and Part D premiums once you reach certain income thresholds. There is a two-year lookback when figuring out if you have to pay IRMAA. For 2025 IRMAA, if in 2023 you filed your taxes as Married Filing Jointly and had $212,000 or less Modified Adjusted Gross Income (MAGI), you have $0 IRMAA surcharge. If in 2023, you filed your taxes as single and had $106,000 or less MAGI, you have $0 IRMAA surcharge in 2025. There are five income brackets that apply different IRMAA amounts on top of your base Part B/D premium.

Long-Term Care

You can also use HSA dollars to pay for long-term care (LTC) insurance premiums, which have become quite expensive over the last few years. Bottom line: The odds are good that sometime before you die, you’ll have some medical expenses that could be paid with tax-free money that compounded for decades. Worse-case scenario, at age 65 your HSA changes to a quasi-traditional IRA where you can use the money for any purpose (not just QMEs) and you’ll only pay income tax (no 20% penalty for non-QME spending). That’s a good deal!

HSA Cons

1. Generally speaking, California & New Jersey don’t conform to the federal standard and fail to recognize HSAs. Your HSA contributions will not reduce your state income tax. Dividends, interest, and capital gains within your HSA brokerage account may be taxable each year at the state level for NJ and CA. Consult with your financial professional. Don’t let this stop you. I still had an HSA when I lived in New Jersey because the benefits far outweighed the state tax annoyance.
2. If you die, your spouse can inherit your HSA as if it was their own. If they die, or if you have a primary beneficiary who is not your spouse, the account is no longer classified as an HSA when you die. When this happens, the fair market value of the account becomes taxable to the beneficiary in the year in which you die. This could create a tax issue for non-spouse beneficiaries. When you die, a non-spouse beneficiary can still use the HSA dollars to pay for your qualified medical expenses that were incurred, but not paid, prior to your death. These expenses can be paid up to one year after your death.

Tax Time

You’ll receive a 5498-SA from your HSA custodian showing how much you contributed. A 1099-SA will be issued if you took distributions from your account. You or your accountant will need to file IRS Form 8889 documenting your contributions, your employer’s contributions, any distributions taken, and any penalties owed. You don’t have to provide receipts at tax time showing that you paid for qualified medical expenses, however, you’ll still want to save the receipts and have a good tracking system in place in the event of an audit.

Big Picture

You can view your HSA as a quasi-retirement account with an added bonus of immediate use for qualified medical expenses if needed, or reimbursement for medical expenses in the future. At some point we will all have some type of medical expense, whether it’s long-term care, Medicare premiums, or extra sunscreen for those retirement days sitting on the beach with an umbrella drink. If your family’s health situation allows, consider taking advantage of immediate tax savings, lower premiums, and tax-free investment growth.

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Tyler Weerden, CFE is a financial planner and the owner of Layered Financial, a Registered Investment Advisory firm. In addition to being a financial planner, Tyler is a full-time federal agent with 15 years of law enforcement experience on the local, state, and federal level. He has served in both domestic and overseas Foreign Service assignments. Tyler has experience with local, state, and federal pension systems, 457(b) Deferred Compensation, the federal Thrift Savings Plan (TSP), Individual Retirement Arrangements (IRAs), Health Savings Accounts (HSAs), and invests in rental real estate. He holds a Bachelor of Science degree, a Master of Science degree, passed the Series 65 exam, and is a Certified Fraud Examiner (CFE).

https://www.fedweek.com/experts-view/health-savings-account-for-2026-why-i-love-my-hsa/amp/