Rising Health Care Costs and the Role of HSAs in 2026
It’s no secret that health insurance costs continue to rise. But here’s something many small business owners don’t know. The solution isn’t always paying more. Oftentimes it can come down to thinking differently.
That’s where a tax-advantaged Health Savings Account (HSA) comes in. An HSA does more than help employees set aside money for qualified medical expenses. It can help your organization combat rising health insurance costs which is particularly helpful in today’s environment.
While many employers views HSAs as a spending tool, the opportunity is to start thinking of them as an investment tool. An HSA can lower your fixed costs by reducing premiums and shift dollars into employee-owned savings instead. That means you’re not just absorbing rate increases, you’re redirecting money in a way that builds long-term value for your business and your employees.
Triple Tax Benefits of an HSA
- Funds come out of employees’ paychecks before taxes, reducing their taxable income.
- Investments grow tax free. Any interest or investments gains are not taxed.
- Qualified withdrawals are 100% tax-free. As long as money is used for medical expenses (including vision, dental, and even some over-the-counter medications), it is not subject to tax.
For those in a 25% tax bracket, using an HSA is like getting a 25% discount on every visit to the doctor.
Lower Insurance Premiums with HDHP Plans
Because an HSA is available only with a High-Deductible Health Plan (HDHP), premiums are typically lower than traditional health plans. That reduces your fixed, recurring costs, and your employees’ expenses, too, when they are contributing the premium.
Portability of HSA Funds
Employees own their HSAs, not their employers. That means, if employees change jobs, they can take their accounts with them. The same is true when they retire.
No “Use It or Lose It” Rules
Unlike funds in an employer-sponsored Flexible Spending Account, HSA funds do not expire. They carry over to the next plan year. That allows employees to build a tax-free nest egg for future medical expenses, even those incurred during retirement.
Broad Flexibility for Qualified Expenses
HSA funds can be used for copayments, deductibles, prescription drugs, and other qualified expenses. If funds are used for non-qualified expenses before age 65, they subject employees to taxes and a 20% penalty.
Post-Retirement Flexibility After Age 65
After age 65, funds are available for non-medical expenses without a penalty. (They are still subject to income reporting and potential taxes.)
Potential Employer Contribution
According to Fidelity, about 84% of employees enrolled in an HSA-eligible health plan receive a contribution from their employer. It is like a 401(k) match for employees’ health. Plus, it is deductible for your business. Employee Benefit News says employers that contribute to employees’ HSAs have much higher participation rates.
CaliforniaChoice Offers Multiple HSA-Qualified Options
If rising premiums are putting pressure on your benefits budget, it may be time to take a closer look at HSA-qualified plans. CaliforniaChoice includes more than a dozen HSA-qualified plans, including HMOs and PPOs in multiple ACA tiers. Talk with your broker or benefits consultant about running a side-by-side comparison. You may find that shifting to an HSA strategy not only cuts costs, but builds long-term value for your employees.
