Whether you’re starting a new job, in the midst of open enrollment, or are changing health plans due to a qualifying life event, you may have the option to enroll in a high-deductible health plan (HDHP). This type of plan has low monthly premiums, but perhaps more importantly for financially-savvy physicians, it offers the opportunity to contribute to a health savings account (HSA).

HSAs have unique tax advantages by allowing for tax-free contributions, growth, and withdrawals for qualified medical expenses. And when used strategically, they can be powerful vehicles for long-term financial planning and wealth accumulation. We’re going to break down how.

What is an HSA?

An HSA is an account that allows people with high-deductible health plans (HDHPs) to use pre-tax dollars to cover qualified medical expenses paid out of pocket. But as you’ll see, the HSA is incredibly powerful and is often used by high earners as an ancillary retirement account.

The Benefits of HSAs for Physicians

HSAs are known for their rare triple-tax benefit:

• Pre-tax contribution: HSA contributions aren’t subject to income, Social Security, or Medicare taxes.
• Tax-free growth: HSA funds grow tax-free, meaning that reinvested dividends and interest aren’t subject to income tax in the year earned. Note: double check your state's policy here. California and New Jersey do not recognize HSAs so they tax the earnings as income do not allow for state tax deductions. Federal benefits still apply though!
• Tax-free withdrawal: When withdrawn to cover qualified unreimbursed medical expenses, HSA funds aren’t subject to tax upon withdrawal.
• Investment opportunities: You can invest your HSA funds in mutual funds and ETFs, just like a 401(k). Your HSA provider may establish limitations; for example, HSA Bank requires that you keep at least $1,000 in cash.
• Tax-free funds to cover medical expenses: Some HSA providers will give you a debit card that you can use to pay qualified medical expenses. Others require you to reimburse yourself after you pay a bill with other money. Either way, you’re benefiting by using tax-free dollars.
• Traditional retirement account treatment: When you reach 65 years old, you can withdraw HSA funds for any reason, penalty-free. If withdrawn for something other than to pay an unreimbursed medical expense, you’ll pay income tax on the withdrawal, similar to traditional 401(k) funds.
• No time limit on self-reimbursements: You can use your HSA to reimburse yourself for medical bills incurred at any point after establishing your first HSA. Some people use this as a retirement investment strategy; they keep their HSA funds invested, hold onto all of their medical bill receipts, and reimburse themselves in retirement to receive some tax-exempt income.

Here’s an example: Dr. Molly is 30 years old. She earns a salary of $300,000 and invests $2,000 a year into an HSA. She doesn't touch her HSA until age 65 so will have contributed $70,000 over the course of 35 years. Her combined state and federal tax rate is 42%, and let’s assume there’s a 7% average annual return on her HSA.

• Total Future Value of Molly’s HSA: $295,827
• Taxes Saved on Contributions: $29,400 ($70,000 x .42)
• Total Investment Earnings: $225,827 ($295,827 - $70,000)

HSA Disadvantages

Although there are many pros, HSAs come with a few cons:

• HDHP requirement for contribution: You must have an HDHP to contribute to an HSA. If you establish an HSA while you have an HDHP and change to an ineligible plan, you generally can’t contribute to it. However, you can still use the funds to pay unreimbursed medical expenses that you incur.
• Limited investment options: HSA providers aren’t known for having the most extensive investment options. You can generally choose from a limited selection of broad-based mutual funds and ETFs.
• 20% non-qualified withdrawal penalty: You’ll incur a 20% penalty — and income tax due —on funds withdrawn from an HSA that don’t go toward qualified medical expenses. The 20% penalty doesn’t apply when you’re at least 65 years old.

How to Fund an HSA

HSAs are generally available to those covered by HDHPs. To qualify as an HDHP in 2025, a health insurance plan must have a minimum deductible of $1,650 for self-only coverage or $3,300 for family coverage. The out-of-pocket maximum can’t be higher than $8,300 for self-only coverage or $16,600 for family coverage.

HSA Contribution Limits

In 2025, you can contribute up to $4,300 with a self-only plan or $8,550 with a family plan. People who are at least 55 years old can contribute an additional $1,000, known as a catch-up. That means a family with two parents who are older than 55 years old can contribute up to $10,550 to an HSA in 2025. Your contribution limit is reduced by any contributions that your employer makes on your behalf.

There is a unique opportunity for nondependent children covered their parents’ family HDHP:

Due to a quirk in the way HSA rules were written, those with a family HDHP that covers a nondependent child have a rare opportunity to contribute more than what’s typical to HSA plans.

Here's an example: Spouses Mary (50 years old) and Mark (50 years old) and child Michael (24 years old) are all covered by a family HDHP tied to Mary’s job. Therefore, Mary can contribute up to $8,550 to an HSA in 2025. Here’s where it gets interesting. Michael lives outside his family home and is generally financially independent. However, Michael is still on his parents’ health insurance plan. This allows Michael to open his own HSA and fund it up to the family maximum of $8,550. Michael’s parents can even contribute the funds on his behalf. That means the family gets to contribute a total of $17,100 in one year.

Is an HDHP Is Right for You?

As a physician, whether an HDHP is right for you depends largely on your financial circumstances and expected health expenses. Although HDHPs cover 100% of preventative care costs, just like other health insurance plans, they come with hefty out-of-pocket maximums. Here are two considerations:

• Make sure you can afford the out-of-pocket maximum: Pay close attention to your plan’s limits. It’s not worth going into medical debt for the potential to save a bit on your taxes.
• An HDHP may make you think twice about seeking medical care: You know the immense value derived from receiving prompt medical attention. But doing so on an HDHP may cost more due to initial lower reimbursement rates until you meet your deductible. If you suspect that an HDHP will prevent you from seeking the specialty care you need, then it might not be worth having the plan.

Two scenarios demonstrate the impact of an HDHP and HSA

Scenario #1: The Resident

Dr. Polly, a second-year neurosurgery resident, is unmarried, has no children, and earns $75,000 annually. Polly is generally healthy, but has been going to physical therapy to treat a knee injury, so she incurred $5,000 in non-preventative medical costs last year. She currently has $15,000 in her bank account. Her hospital offers the choice of two self-only plans:

Because Polly has only $15,000 in her bank account and isn’t on track to save much if anything this year, she might be a poor candidate for an HDHP as paying through the deductible would be a significant financial hit. She’s likely better off paying more for health insurance coverage and having the peace of mind that she won’t be destitute in the event of a medical emergency.

Scenario #2: The Attending

Dr. Molly, an attending neurosurgeon, is married with two children and earns $575,000 annually. Molly and her family spend about $15,000 per year on out-of-pocket medical care costs. Her hospital offers the choice of two family plans:

Molly has been in practice for a decade and has already built a substantial financial nest egg. Because she can easily cover the potential $16,600 out-of-pocket maximum, she might be a good candidate for an HDHP. Having the HDHP won’t financially drain her in the event of a medical emergency, and she’ll gain access to a family HSA and all the perks that accompany it.

Join the Discussion

Is an HSA a viable option for you? What questions do you have about HDHPs and HSAs? Let us know in the comments below.