Key takeaways

• 2025 contribution limits for health savings accounts (HSA) have increased, giving workers more room to save and invest for future healthcare needs.
• Younger account holders may benefit from investing in an HSA early and letting them grow over time.
• HSAs can be used for medical expenses now or as a flexible way to save for future needs.

HSAs may present Gen Z and Millennials with tax advantages, investing potential, and flexibility — making them a potentially compelling way to build future healthcare savings.

Health savings accounts (HSAs) are gaining momentum in the world of savings. For Gen Z and Millennials, the long investing runway ahead may make them especially powerful. Contribution caps are rising, more employers are offering Consumer-directed Healthcare (CDH) plans to employees alongside HSAs, and a growing number of account holders are investing their balances in mutual funds, exchange-traded funds (ETFs), or other options offered within their HSA.¹ Even though these accounts are designed to cover healthcare expenses, their saver-friendly terms can also make them ways to invest long-term for future medical costs.

For younger workers, an HSA could provide another way to save for future medical needs tax-free while also serving as an investment account that may help them see returns over time. 

Saving now, spending later

A number of people treat their HSAs like a checking account for medical bills, which is their intended purpose.² But an increasing number of young workers are shifting to an investment mindset with their accounts. In 2011, only 2% of accounts were invested. By 2023, that figure grew to 15%.³

Invested accounts are also more likely to hold larger balances. As of mid-2024, total invested HSA assets rose 38% year-over-year, due in part to strong market performance.⁴ That’s the benefit of compounding — investors earn returns on their contributions, and those returns generate earnings of their own. 

Over time, this cycle could make the growth curve steepen quickly. This may benefit younger HSA investors: the earlier money is invested, the more likely it is to grow substantially over time. Shifting savings to investments may not be right for everyone, however. But for those who can keep the money stashed away for the long-term, it may create a much larger reserve for future healthcare needs.

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How HSAs work

HSAs are available to people enrolled in High-Deductible Health (HDH) plans and CDH plans. Contributions go in pre-tax and can be deducted from the account owner’s income, much like 401(k)s and other employer-sponsored healthcare plans.⁵ Earnings also grow tax-free for the life of the investment, and withdrawals to pay for qualifying medical expenses are also tax-free.⁶ 

The maximum HSA contribution for 2025 is $4,300 for self-only coverage, or $8,550 for family coverage. There is an additional $1,000 in catch-up payments for people 55 or older. To qualify for an HSA, an HDH or CDH plan must have a $1,650 deductible at minimum for individuals, or a $3,300 deductible for family coverage.⁷ Out-of-pocket maximums must be no higher than $8,300 or $16,600 respectively.⁸

The benefits of an HSA account are designed to help account holders pay for immediate expenses, but also for expenses years down the line. Unlike Flexible Spending Accounts (FSAs), which are tied to employers, HSAs stay with the account owner throughout the lifetime of the account.⁹ There is no requirement to spend down the balance every year, nor to drain the funds after leaving a job.

HSAs gain traction in the workplace

HSA-qualified plans are becoming more common. As of 2024:¹⁰

• 21% of covered workers are enrolled in an HSA-qualified HDHP
• 25% of firms offer HSA-qualified high-deductible plans through their employer
• Roughly 1 in 5 people provided with these plans are enrolled
• Employers contribute an average of $705 for self-only coverage and $1,297 for family plans

For many Gen Z and Millennials, healthcare costs may be relatively low compared to what they may experience later in life. This could make the higher deductibles of an HSA-qualified healthcare plan more predictable: fewer healthcare expenses at this life stage make deductibles easier to manage, while lower premium payments help keep payments in line with care. The money saved can go into an HSA, where it may compound for decades before it’s needed for medical care. 

Read more: The Benefits Blueprint: Benefits to build financially resilient workforces

The benefits of HSAs for Gen Z and Millennials

Healthcare spending rises with age. Today’s youngest adults account for 44% of the U.S. population, but only about 21% of total health spending.¹¹ That’s compared to adults 55 and older, who make up 41% of the population yet account for 56% of its spending.¹² There is an advantage for younger workers with lower average yearly healthcare spending: Any additional savings could be invested, turning the account into a source of compounding interest rather than a healthcare-specific checking account.

For example, a 25-year-old who contributes $200 a month to an invested HSA that keeps pace with the S&P 500^®’s performance — an average rate of return of 6.47% — could potentially build a balance of about $33,000 over 10 years. This is based on a hypothetical 6.47% return in line with S&P 500^® averages.¹³ The account could accumulate around $453,000 by age 65, depending on investment performance and risk tolerance.

How HSAs grow with younger workers

An HSA plays several roles over time: they can be a tax-free investment vehicle earlier in life, a method of paying for increasing healthcare costs for families, and become a source of cash when paying for higher expenses later in life — all tax-free for qualifying expenses. This means younger workers who get in early may use their account balances for a range of purposes for every life stage. 

For younger workers with time on their side, an HSA isn’t just another benefits checkbox. It can be the type of quiet, long-term financial move that plays the long game.