HSAs as an Investment Tool: What To Consider During Open Enrollment

As 2025 open enrollment begins, high-income earners have a unique opportunity to maximize their health and wealth strategies. A Health Savings Account (HSA) —can be a beneficial investment tool when paired with a High Deductible Health Plan (HDHP), offering potential tax advantages. 

HSAs offer a way to set aside money either pre-tax or as a tax deduction when filing your return, helping you cover qualified medical expenses without paying taxes on those funds. However, there are annual limits on how much you can contribute, and exceeding those limits may result in tax penalties. To avoid surprises, it’s important to understand the contribution rules. Also, keep in mind that you must be enrolled in a high-deductible health plan (HDHP) that qualifies for HSA contributions.   

Key numbers you need to know

Here’s what you need to know to make the most of your options this enrollment season.  

• Health Savings Account (HSA)
  The HSA contribution limits for 2026 are $4,400 for self-only coverage and $8,750 for family coverage. Those 55 and older who are not enrolled in Medicare can contribute an additional $1,000 as a catch-up contribution. For more information, read HSA and Medicare: How to Make the Most of Both. 

• Healthcare Flexible Spending Account (FSA) 
  Offered through employers, FSA accounts allow you to set aside pre-tax money from your paycheck to pay for eligible out-of-pocket medical, dental, vision, and some dependent care expenses. Funds must be used within the plan year, though some accounts allow small rollovers or grace periods. The contribution limit for 2026 has increased to $3,400, up from $15 in 2025. If allowed, the carryover amount is up to $680. 

• Dependent Care FSA (DCFSA)
  DCFSAs are a pre-tax benefit that allows employees to set aside money from their paychecks to pay for eligible care services, including daycare, preschool, and summer camps, for qualifying dependents (like young children or disabled adult family members) so they can work or attend school. The DCFSA household contribution limit for 2026 is $7,500. If you’re married, filing separately, the limit is $3,750 per spouse. 

When is healthcare open enrollment?

Open enrollment can feel overwhelming — premiums, deductibles, networks, and deadlines all shift from year to year. However, this is also your one chance to ensure your insurance coverage aligns with your life. During this period, you can: 

• Choose a new health insurance plan. 

• Switch between plan types (e.g., from a PPO to an HDHP). 

• Add or remove dependents from your coverage. 

• Enroll in or modify optional benefits like dental, vision, or healthcare savings accounts.

For most states, open enrollment for 2026 coverage runs from November 1, 2025, through January 15, 2026. However, there are a few states that follow different timelines: 

• Idaho begins its enrollment period a bit earlier, starting on October 15, 2025, and ending on December 15, 2025.  

• Massachusetts extends its window slightly longer than most states, running from November 1, 2025, through January 23, 2026.  

• California, the District of Columbia, New Jersey, New York, and Rhode Island offer the longest open enrollment period, continuing through January 31, 2026.¹ 

It’s important to note that employer-sponsored benefits typically have an open enrollment period that runs from October through December, though exact dates may vary depending on the company. Read our article to discover what to avoid during employer-benefits open enrollment.  

HDP vs. PPO: Which works best for high earners?

When choosing health insurance, high earners often face a strategic decision: a high-deductible health plan (HDHP) or a preferred provider organization (PPO) plan. Each offers unique benefits depending on your health care needs, tax strategy, and financial goals. 

What is a high-deductible health plan?

An HDHP is a health insurance plan with a higher deductible and lower monthly premiums compared with traditional plans. For 2026, the IRS defines an HDHP as any plan with a deductible of $1,700 for individuals and $3,400 for families. Out-of-pocket expenses can’t exceed $8,500 for individuals or $17,000 for families. 

From a tax perspective, an HDHP allows you to contribute to an HSA. You can use HSA funds tax-free for qualified medical expenses, or you can invest them for long-term growth. 

What is PPO insurance?

(PPOs) are a popular choice for health coverage, often featuring lower deductibles than HDHPs, but typically come with higher monthly premiums. Unlike HDHPs, PPOs are not subject to federally mandated minimum deductibles, but they must adhere to annual out-of-pocket maximums set by the Affordable Care Act (ACA). 

For 2026, the ACA has set these limits at $10,600 for individual coverage and $21,200 for family coverage. These caps apply to in-network essential health benefits. It’s important to note that some older or grandfathered plans may be exempt from these ACA requirements and could have different cost-sharing structures. 

Pros and cons: HDHPs vs. PPOs

If you have savings set aside for unexpected medical costs, an HDHP might be a smart option. Here are some of the benefits: 

• HDHPs can be paired with an HSA: Offering triple tax advantages — pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. You can only contribute to an HSA during months you’re enrolled in a qualified HDHP. Unused funds roll over year to year and can be invested for future healthcare needs. 

• Lower monthly premiums: On average, employees with individual HDHP coverage paired with an HSA pay an average monthly premium of $660.² 

• Employer contributions: Employers typically contribute about $680 to individual HSAs and $1,250 to family HSAs annually.³ 

However, HDHPs also come with potential downsides: 

• Higher out-of-pocket costs: HDHPs have higher deductibles — $1,700 for individuals and $3,400 for families in 2026. You’ll pay more upfront before insurance kicks in.² 

• Delayed care: Some people may avoid or postpone medical treatment due to cost concerns, which can lead to more serious health issues later. 

• Financial risk: A sudden illness or injury could leave you responsible for up to $8,500 (individual) or $17,000 (family) in out-of-pocket expenses before insurance covers the rest.² 

A PPO plan may be better suited for individuals who need regular medical care or want more flexibility. Here are some advantages: 

• Lower deductibles: PPOs typically begin covering costs sooner than HDHPs due to lower deductibles. 

• No referrals needed: You can see specialists without needing approval from a primary care provider. 

• Out-of-network coverage: PPOs generally offer partial coverage for out-of-network providers, though costs may be higher and balance billing may apply. 

Potential drawbacks of PPOs include: 

• Higher monthly premiums: On average, the monthly premium for individual PPO coverage is higher than the premium for an HDHP. 

• No HSA access: PPO plans don’t qualify for HSAs. You may be able to use an FSA if offered by your employer, but unused funds may be forfeited at year-end or after the grace period. 

• Separate deductibles for out-of-network care: PPOs often have a higher, separate deductible for services received outside the plan’s network. 

HDHP vs. PPO: Which works best for high earners?

A HDHP is the only type of plan that allows HSA contributions. For high earners, HDHPs create tax efficiency by pairing lower premiums with HSA tax deductions and long-term investment potential. The chart below shows how a PPO stacks up against an HDHP with an HSA.  

HDHP vs. PPO Comparison 

Tax benefits of HDHPs

HDHP participants can fund HSAs pre-tax, reducing taxable income. That’s a built-in tax shield — one that grows if you invest your HSA funds wisely.  

FSA vs. HSA: Understanding the trade-offs

FSAs and HSAs both offer valuable tax advantages, but they work in very different ways. Choosing the right one depends on your health plan, your financial goals, and how you expect to use your healthcare dollars. 

Both FSAs and HSAs allow you to set aside money pre-tax, reducing your taxable income. However, HSAs go a step further with triple tax advantages: 

• Contributions are tax-free 

• Earnings grow tax-free 

• Withdrawals for qualified medical expenses are tax-free 

FSAs offer tax-free contributions and withdrawals, but they don’t grow tax-free and are subject to use-it-or-lose-it rules unless your employer allows a limited carryover or grace period. 

One of the biggest differences is how unused funds are treated: 

• HSA funds roll over from year to year and stay with you, even if you change jobs or retire. 

• FSA funds typically expire at the end of the plan year, unless your employer offers a carryover or grace period. 

If you’re enrolled in an HSA, you can still use a Limited Purpose FSA, but only for dental and vision expenses. This can be a smart way to maximize tax savings while keeping your HSA funds available for broader medical costs or long-term savings. 

Can you have a DCFSA and an HSA?

Yes, you can have both. A DCFSA is separate from your healthcare FSA or HSA. It helps cover eligible childcare or eldercare expenses and doesn’t interfere with HSA eligibility. Just keep in mind that DCFSA contributions are capped at $5,000 per household (or $2,500 if married filing separately). 

The power of HSAs for high-income earners

When it comes to smart financial planning, high-income earners often look for ways to reduce taxable income while building long-term wealth. One strategy that’s often overlooked is an HSA.  

HSAs offer a triple tax advantage that’s hard to beat: 

1. Contributions are tax-deductible or made pre-tax through payroll. 
2. Investment earnings grow tax-free. 
3. Withdrawals for qualified medical expenses are tax-free. 

This combination makes HSAs one of the most tax-efficient savings tools available — not just for healthcare, but for long-term financial planning. 

Should you max out your HSA?

If your cash flow allows, absolutely. For 2026, the contribution limits are: 

• $4,400 for individual coverage 

• $8,750 for family coverage 

• Plus, a $1,000 catch-up contribution if you’re age 55 or older 

Maxing out your HSA not only reduces your taxable income now but also allows your contributions to grow over time — tax-free through compounding. Unlike FSAs, your HSA funds carry over year after year and stay with you, even if you change jobs or retire. HSAs can even be used to help offset rising medical expenses in retirement, see how.  

HSAs as an investment strategy for long-term wealth building and emergency fund creation

Once you’ve built up enough in your account to cover short-term medical costs, you can start investing your HSA funds in mutual funds, ETFs, or other options (depending on your HSA provider). This turns your HSA into a long-term, tax-free investment vehicle. Used strategically, your HSA can function like a healthcare IRA — growing tax-deferred and provide flexibility in retirement. 

And since healthcare costs tend to rise with age, having a dedicated, tax-free fund to cover those expenses in retirement can be a game-changer. 

One often overlooked advantage of HSAs is the ability to use these accounts as an emergency fund. If you spend money on eligible medical expenses during the year and do not reimburse yourself (ideal situation), the funds in the account continue to grow. At any point you can later reimburse yourself for these expenses that were paid while you had your HDP and HSA.  

While waiting to use this money in retirement is ideal, sometimes life happens and the need to tax-free cash arises. That is when you can reimburse yourself for expenses that you paid previously, tax-free. Just be sure to keep track of the medical expenses you incur and paid outside of the HSA account to prove the reimbursements are legitimate. 

Tax considerations for high earners

When your income reaches a certain level, tax planning becomes more than just a year-end task; it’s a strategic part of managing your financial health. Here’s how your healthcare choices can play a role in that strategy. 

Are healthcare premiums tax-deductible?

The answer depends on how you get your coverage: 

• Employer-sponsored plans: If you’re covered through work, your premiums are typically deducted from your paycheck pre-tax, which lowers your taxable income automatically. 

• Self-employed individuals: You may be able to deduct your health insurance premiums above the line, meaning you don’t need to itemize to benefit. 

• Marketplace plans: If you purchase coverage through the ACA marketplace, premium tax credits are available —but they phase out as income increases, which can limit savings for high earners. 

How HDHPs can help reduce taxes

Pairing an HDHP with an HSA can be a powerful tax strategy. HSAs offer: 

• Tax-deductible contributions 

• Tax-free investment growth 

• Tax-free withdrawals for qualified medical expenses 

For high-income individuals, this triple advantage creates a long-term tax shelter that can also serve as a supplemental retirement savings vehicle. 

Common tax pitfalls to avoid

Understanding how healthcare benefits intersect with tax strategy can unlock meaningful savings. Whether it’s choosing the right plan, maximizing your HSA, or avoiding common pitfalls, a little planning can go a long way. Even with the best intentions, it’s easy to overlook a few key rules: 

• Exceeding HSA contribution limits: For 2026, the max is $4,400 for individuals and $8,750 for families, plus a $1,000 catch-up if you’re 55 or older. 

• Using HSA funds incorrectly: Spending on non-qualified expenses can trigger taxes and penalties. 

• Losing FSA funds: FSAs are subject to “use-it-or-lose-it” rules unless your employer offers a carryover or grace period. 

• DCFSA restrictions for high earners: If you’re considered a Highly Compensated Employee (HCE), your ability to contribute to a DCFSA may be limited due to IRS nondiscrimination rules. 

Five common mistakes to avoid during open enrollment

Open enrollment is your annual opportunity to make smart choices about your health benefits, but it’s easy to overlook a few key details that could impact your finances or coverage. Avoiding these five common mistakes helps ensure you’re maximizing your benefits, minimizing your tax liability, and setting yourself up for long-term financial success: 

1. Missing out on HSA catch-up contributions. If you’re age 55 or older, you can contribute an extra $1,000 to your Health Savings Account (HSA). It’s a simple way to boost your retirement savings with tax-free dollars, but only if you remember to opt in. 
2. Overfunding your FSA without a spending plan. FSAs are great for covering out-of-pocket costs, but they come with a “use-it-or-lose-it” rule. If you contribute more than you’ll realistically spend, you could lose unused funds at year-end. 
3. Choosing a PPO without considering tax strategy. PPO plans offer flexibility, but they don’t qualify for HSA contributions. If you’re a high-income earner, this could mean missing out on valuable tax savings and long-term investment growth potential. 
4. Overlooking spousal coverage and HSA eligibility. If your spouse is covered under a non-HDHP plan, it could affect your eligibility to contribute to an HSA. Ensure your household coverage aligns with your savings objectives. 
5. Ignoring DCFSA limits for high earners. If you’re considered an HCE, your ability to contribute to a DCFSA may be restricted due to IRS nondiscrimination rules. Check your eligibility before enrolling. 

For more information, including unbiased insurance advice and tax optimization strategies, speak with your wealth advisor. If you are not a Mercer Advisors client and would like to learn more, let’s talk.