The BBB — Making HSAs Even Better
The House recently passed a new tax and budget bill – the Big Beautiful Bill (BBB). There are sections of the bill reaching into nearly every corner of the tax code and federal budget, and one section could significantly expand Health Savings Account (HSA) eligibility and benefits.
HSA’s are already a good deal, and these provisions make them even better.
The Senate still gets their say on the legislation, but for the moment, proposed changes include allowing Medicare Part A enrollees to contribute, and letting Bronze and Catastrophic ACA plan holders open HSAs. The bill also permits tax-free withdrawals for some fitness expenses and allows both spouses to make catch-up contributions to one account.
If enacted, these updates could extend HSA access to 20 million more Americans and increase the value of these accounts to those already eligible.
With these potential changes on the horizon, it's a great time to understand how a Health Savings Account works and the benefits it can offer.
Healthcare costs climbing with no end in sight
The growth in health care expenditures in the United States has been remarkable over the past several decades. In 2023, health care spending reached $4.9 trillion nationally – approximately $12,297 per person each year, and nearly 18% of GDP.(1)
This marks a dramatic increase from just 5% of GDP in 1962.
Multiple factors drive this persistent growth, including an aging population, rising prevalence of chronic conditions, advances in medical technology, broader insurance coverage, and overall health care cost inflation.
HSAs offer significant tax advantages with growing contribution limits
For those who qualify, HSAs are a valuable financial planning tool. HSAs are available to individuals enrolled in high-deductible health plans (HDHPs), which in 2026 means plans with minimum deductibles of $1,700 for individuals or $3,400 for families. (2)
What makes HSAs truly unique is their tax treatment. They are the only financial vehicle that offers triple tax advantages:
Tax-deductible contributions: Funds contributed to an HSA reduce your taxable income in the year of contribution, providing immediate tax savings.
Tax-free growth: Any interest, dividends, or capital gains earned within an HSA accumulate completely tax-free.
Tax-free withdrawals: When used for qualified medical expenses, withdrawals from HSAs are entirely tax-free, regardless of when they occur.
This combination of tax benefits makes HSAs mathematically superior to both traditional and Roth retirement accounts when the funds are used for qualifying health care expenses.
HSAs can transform retirement planning
One of the most advantageous HSA strategies – and one that many account holders overlook – is to treat your HSA as a specialized retirement account specifically for health care expenses. This approach involves maximizing annual HSA contributions while potentially paying some of your current medical expenses out-of-pocket. In this case, keeping receipts for qualified medical expenses you pay out-of-pocket is helpful, as these can be reimbursed from your HSA at any point in the future – even decades later – with no time limit.
The key to implementing this strategy is that HSA funds are invested for long-term growth – allowing HSA investments to gain tax-free over time. Over an extended time period, this can create a tax-advantaged reservoir specifically designated for retirement health care needs.
Unlike many retirement accounts, HSAs have no required minimum distributions during your lifetime, allowing for maximum tax-advantaged growth potential. Additionally, after age 65, HSAs become even more flexible, as the 20% penalty for non-health care withdrawals disappears. While non-qualified withdrawals would still be subject to ordinary income tax (similar to a traditional IRA or 401(k)), this flexibility makes HSAs particularly helpful for retirement planning.
HSAs can play a strategic role in estate planning
Beyond retirement planning, estate planning should be considered within your broader financial strategy. The treatment of HSA funds after death depends on the designated beneficiary, and can be a great way to carry forward the tax advantages to your spouse.
Specifically, if your spouse is the named beneficiary, the HSA transfers to them with all tax advantages intact. They can continue to use the account as their own HSA, maintaining all the triple tax benefits.
For non-spouse beneficiaries such as children or other individuals, the treatment is less favorable and can create a significant tax burden, especially if the HSA is sizable.
These estate planning considerations highlight the importance of integrating your health care funding strategy within your broader financial plan.
The bottom line? Rising health care needs pose a significant financial planning opportunity. HSAs are a great tool for this purpose, with unmatched tax advantages for one of life's largest expenses. The BBB may make this tool an even more valuable tool in your financial plan.
1. https://www.ama-assn.org/about/ama-research/trends-health-care-spending
2. https://www.irs.gov/government-entities/federal-state-local-governments/where-can-i-learn-more-about-health-savings-accounts-hsa-and-health-reimbursement-arrangements-hra