The Internal Revenue Service (IRS) recently announced an increase in the limits for health savings accounts (HSAs) in 2027.[i] If there is a workplace benefit with more tax advantages than a 401(k) or 403(b), it has to be the triple tax advantage of the HSA. When HSAs were created in 2003, the concept was relatively straightforward: pair a tax-advantaged savings account with a high-deductible health plan (HDHP) and encourage consumers to become more engaged healthcare purchasers. Two decades later, HSAs have evolved into something much larger: a hybrid healthcare-retirement savings vehicle.
Here’s What You Really Need to Know
- For calendar year 2027, the HSA contribution limit for an individual with self-only HDHP coverage is $4,500, increased from $4,400 for 2026. For an individual with family HDHP coverage, the contribution limit is $9,000, increased from $8,750 for 2026.
- Individuals who are aged 55 or older by the end of the taxable year may continue to make an additional catch-up contribution of $1,000.
- Revenue Procedure 2026-24 also includes the first inflation adjustment guidance for direct primary care service arrangements (DPCSAs), which became HSA-compatible under legislation enacted earlier this year.
Let’s Dive In
HSAs are a relatively recent addition to the retirement and benefits landscape, but they’ve grown into a major retirement savings vehicle and are increasingly viewed not just as a healthcare spending account, but as a supplemental retirement savings tool. HSAs were created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and became available beginning January 1, 2004.[ii] They replaced the more limited “Archer Medical Savings Accounts” that had been piloted in the late 1990s, and, unlike flexible spending accounts (FSAs), HSA balances do not expire. HSAs also have a distinct tax advantage: like 401(k)s, HSA contributions are typically made on a pre-tax basis, and earnings accumulate tax-free, but unlike 401(k)s, withdrawals for qualifying medical expenses are also tax-free.
The basic idea was to couple an HDHP with a tax-advantaged savings account in order to encourage consumers to become more cost-conscious healthcare purchasers, and to give individuals a way to accumulate funds for future medical expenses. Early adoption was slow for two basic reasons: these programs were frequently offered as a health benefit option alongside traditional medical plan coverage (and people tended to go with what they knew), and the label “high-deductible,” which tended to discourage selection.
What is an HDHP?
To remain HSA-qualified, HDHPs must satisfy annual IRS minimum deductible and maximum out-of-pocket thresholds, both of which increase modestly for 2027. To qualify as an HDHP in 2027, a plan must have an annual deductible of at least $1,750 for self-only coverage and $3,500 for family coverage, increased from $1,700 and $3,400, respectively, for 2026. The maximum annual out-of-pocket expenses permitted for an HDHP are $8,700 for self-only coverage and $17,400 for family coverage, increased from $8,500 and $17,000, respectively, for 2026.
Importantly, the HSA itself is generally not intended to be a plan governed under the Employee Retirement Income Security Act (ERISA). The HDHP provides the underlying medical coverage, while the HSA is an individually owned account established with a bank, trust company, or other qualified custodian. Employees retain ownership of the account and portability of the assets, even after changing employers or retiring. That distinction becomes particularly important from an ERISA perspective.
While the accompanying HDHP is generally an ERISA-covered welfare benefit plan, employers often seek to structure HSA programs to avoid having the HSA itself treated as an ERISA plan. Guidance from the Department of Labor (DOL) provides a regulatory “safe harbor” under which employer involvement must remain limited. In general, employers can allow payroll deduction contributions through a cafeteria plan, make employer contributions, and even encourage participation, but to remain outside ERISA coverage, employers generally must avoid exercising discretionary control over the HSA program itself.
Retirement Healthcare Costs as a Major Driver
Healthcare has become one of the largest — and least predictable — expenses facing retirees. Medicare premiums, deductibles, prescription drug costs, dental and vision expenses, and long-term care exposures can create substantial out-of-pocket liabilities, particularly as healthcare inflation continues to outpace general inflation. Indeed, concerns about healthcare costs in retirement have become one of the central narratives supporting HSA growth.
As a result, what was once viewed primarily as a consumer-directed healthcare feature is increasingly discussed alongside retirement readiness initiatives, emergency savings strategies, and financial wellness programs. That said, according to the Plan Sponsor Council of America’s (PSCA) 2025 HSA Survey, less than 30 percent of respondents indicated that they position the HSA as part of a retirement savings strategy to employees (a statistic that is consistent with the last several years).
Market Trends
HSAs grew to $173.8 billion in assets last year, up 19 percent from 2024, according to Devenir Group, an HSA research firm and investment consultant.[iii] Total assets include deposits and investments. The latter category grew to $85 billion last year, up 33 percent from 2024. Approximately 4.2 million accounts, or about 10 percent of all HSAs, held invested dollars at year-end. Nearly half of all HSA assets (49 percent) are now held in investments, according to the report.
Employer adoption has been a major driver:
- About 41 percent of workers reportedly had employer access to an HSA in 2025.
- Employer-affiliated HSAs account for roughly two-thirds of total HSA assets.
Those figures reinforce a broader trend: while most HSA assets remain in cash, the fastest-growing segment of the market is investment-oriented balances.
An Education Issue and Opportunity
Employee education remains the most common HSA concern, cited by 62 percent of employers in the PSCA survey. Employee engagement was the second-most cited concern. Most employers only provide education once a year (during open enrollment), though a third do so throughout the year.
The dominant topic targeted by HSA education is understanding the tax benefits of HSAs, indicated as the primary goal by more than half of respondents to the PSCA survey, followed distantly by contribution limits and the HSA-qualifying health plan.
Action Items for Plan Sponsors
HSAs increasingly occupy an unusual place in the benefits system: technically a healthcare account, but functionally, for many participants, an additional retirement savings vehicle. And as concerns about retirement healthcare costs continue to grow, that role is likely to expand rather than diminish. Plan sponsors may consider these action items related to their HDHPs and the intersection of health and wealth for their employees:
- Review HDHP design alongside the HSA strategy. The value of an HSA is directly tied to the underlying HDHP. Plan sponsors should periodically review deductibles, out-of-pocket maximums, employer contributions, and preventive care coverage to ensure the plan remains both HSA-qualified and competitive from an employee affordability perspective.
- Evaluate whether the HSA program preserves ERISA safe harbor status. Employers should carefully assess the level of involvement they maintain with HSA administration and investment oversight. Excessive employer control over investments, distributions, or account administration can risk converting the HSA into an ERISA-covered plan, potentially creating fiduciary obligations and additional compliance requirements.
- Evaluate an integration with broader retirement and financial wellness initiatives. HSAs increasingly sit at the intersection of healthcare and retirement planning. Plan sponsors should consider integrating HSA education into retirement readiness programs, particularly for more seasoned employees concerned about future healthcare expenses in retirement.
- Monitor vendor fees, investment menus and participant engagement. As HSA balances grow, plan sponsors may face increased scrutiny regarding provider selection and participant outcomes — even where the HSA itself is not technically subject to ERISA. Reviewing fees, investment access, cash thresholds, portability provisions, and participant utilization trends can help ensure the program remains competitive and effective.
[i] U.S. Department of the Treasury and Internal Revenue Service, “2027 Inflation Adjusted Amounts for Health Savings Accounts,” Revenue Procedure 2026-24, Internal Revenue Bulletin 2026-25 (May 29, 2026), https://www.irs.gov/pub/irs-drop/rp-26-24.pdf.
[ii] Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (2003).
[iii] Devenir Group, LLC, “HSA Assets Reach Nearly $174 Billion at Year-End 2025 as Investment Assets Rise to $85 Billion,” press release, April 23, 2026, https://www.devenir.com/hsa-assets-reach-nearly-174-billion-at-year-end-2025-as-investment-assets-rise-to-85-billion/.