HSA-eligible health plans: the triple tax break explained

The three breaks, in plain English

Most tax-advantaged accounts give you one break, sometimes two. An HSA gives you all three:

1. In, untaxed. Contributions through an employer's payroll come out before income tax and, generally, before Social Security and Medicare payroll taxes too. If you contribute on your own (self-employed, or a marketplace plan with no employer involved), you deduct it on your tax return whether or not you itemize.
2. Growth, untaxed. Once the balance is in the account, you can leave it in cash or invest it, and interest or investment gains aren't taxed while they sit there.
3. Out, untaxed. Withdrawals for qualified medical expenses are tax-free. That covers deductibles, copays, prescriptions, dental and vision work, and a long list of other costs the IRS recognizes.

Three more features make it stranger, in a good way. The money never expires. Unlike most FSAs, there's no use-it-or-lose-it deadline; the balance rolls over year after year. It's yours. The account stays with you when you change jobs, change plans, or retire. And there's no deadline to reimburse yourself. As long as the expense happened after you opened the HSA, you can pay out of pocket today, keep the receipt, and pull the money out years later. Some people use that to let the balance grow.

The IRS sets the annual contribution limits each year, with separate figures for self-only and family coverage, and people 55 and older can add an extra $1,000 catch-up contribution. Check the current-year limits before you set up payroll deductions.

Who qualifies, and the 2026 marketplace change

You can contribute to an HSA for any month you meet all of these:

• You're covered by an HSA-qualified high-deductible health plan. The IRS sets a minimum deductible and a maximum out-of-pocket for these plans each year, and the plan generally can't pay for non-preventive care until you've met the deductible.
• You have no other disqualifying coverage. A spouse's regular (non-HSA) plan that covers you, a general-purpose FSA, or Medicare all knock you out for that month.
• You aren't claimed as a dependent on someone else's tax return.

What changed for 2026: under a 2025 federal tax law, bronze and catastrophic plans sold through the marketplace are now treated as HSA-compatible, starting with 2026 plan years. Before that, only bronze or silver plans built to the IRS's high-deductible rules counted, and many bronze plans didn't. Practically, that means more people shopping on the marketplace can pair their plan with an HSA. Plans still differ by carrier and county, so look for the HSA-eligible label in the plan details, or ask me to confirm it for the plans in your area.

Catastrophic plans are limited to people under 30 or those with a hardship exemption, so for most marketplace shoppers the realistic HSA options are bronze plans. The bronze vs. silver vs. gold comparison lays out how those trade off against the higher metal levels.

Here's the catch: the deductible is real

An HSA is a tax break attached to a plan that makes you pay more of your own care up front. Preventive care is still covered before the deductible, but a specialist visit, an MRI, or a hospital stay generally comes out of your pocket until you reach it. If you're unfamiliar with how those numbers interact, deductible vs. out-of-pocket max is the five-minute primer.

Where an HSA plan tends to work well:

• You're generally healthy and expect mostly preventive visits.
• You can put money into the account, ideally enough to cover a good chunk of the deductible.
• You'd rather have a lower premium and a growing tax-free balance than pay for coverage you rarely use.

Where it tends to backfire:

• You have a chronic condition, ongoing prescriptions, or a planned surgery or pregnancy, and you'd hit the deductible every year anyway.
• You can't spare money to fund the account. A high deductible with an empty HSA is just a high deductible.
• Your income makes you eligible for cost-sharing reductions. On the marketplace, households under 250% of the federal poverty level can get silver plans with much lower deductibles, and that upgrade is often worth more than the HSA tax break. The subsidy calculator shows where your income lands.

The subsidy bonus most people miss

If you buy a marketplace plan on your own, HSA contributions you deduct lower your adjusted gross income, and the premium tax credit is calculated from a version of that income. A lower number can mean a slightly larger subsidy, or a smaller amount to pay back at tax time if your income came in higher than you projected. How much it helps depends on your household size and where your income falls, so treat it as a bonus, not a reason on its own.

That matters most for people whose income moves around. If you're self-employed, the self-employed guide covers the other deductions that interact with your subsidy, and what happens if your income changes mid-year explains the reconciliation. Your tax preparer should be the final word on your own return.

Spending it, and the Medicare cutoff

A few rules keep the tax break intact:

• Non-medical withdrawals before 65 are taxed as income plus a 20% penalty. After 65 the penalty goes away; you'd just pay income tax on non-medical withdrawals, similar to a traditional IRA. Medical withdrawals stay tax-free at any age.
• Premiums are mostly off-limits. You generally can't use HSA money for regular health insurance premiums. The exceptions include COBRA, coverage while you're receiving unemployment benefits, a portion of long-term care premiums, and, once you're 65, Medicare premiums other than Medigap.
• Keep your receipts. The account provider doesn't usually check what you spend it on. The IRS can, and the receipt is your proof.

The Medicare cutoff is the one that catches people. Once you're enrolled in any part of Medicare, including premium-free Part A, you can no longer contribute. Part A enrollment after 65 is generally backdated up to six months, so people still working usually stop contributions about six months before applying. You keep the balance and can keep spending it. I wrote about the timing in working past 65.

If you want to see which plans in your county are HSA-eligible next to the regular ones, with your subsidy applied, compare plans online or call me at (561) 660-9102. It's free, and the premiums are the same either way.