The “Working Families Tax Cuts” Gives HSAs a Major Upgrade

More than 40 million Americans have a Health Savings Account, yet most treat it like a checking account instead of what it truly is: one of the most powerful tax-advantaged savings tools in the tax code.

When a medical bill arrives, many families simply swipe the HSA debit card and move on. The balance often sits in cash, earning little or nothing. That approach feels practical, but it sacrifices the most valuable feature of an HSA, which is long-term, tax-free growth.

There is a better way to use an HSA, and recent policy changes have made that opportunity available to millions more households.

The Working Families Tax Cuts Expanded HSA Access

The 2025 “Working Families Tax Cuts” significantly expanded HSA eligibility. Under the updated law, HSA-qualified insurance plans now include Obamacare bronze and catastrophic tier plans, along with direct primary care arrangements.

That expansion matters. Millions of additional families who previously could not contribute to an HSA are now eligible to do so. Instead of limiting HSAs to a narrower slice of the market, the law broadened access and strengthened one of the most consumer-driven features of the health system.

More eligibility means more families can benefit from tax-free contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

How Most People Still Use an HSA

Despite its advantages, most account holders continue to use an HSA in a short-term way. A medical bill arrives, the HSA balance is held in cash, and the bill is paid immediately from the account.

That approach stops compounding before it has time to work. Every dollar withdrawn today is a dollar that no longer grows tax-free over the next decade.

The Feature Many Account Holders Overlook

Most HSA plans allow the account balance to be invested once a small cash minimum is met. In many cases, only a few hundred dollars must remain in cash, while the rest can be invested in mutual funds or index funds.

This is the feature that transforms an HSA from a spending account into a long-term asset.

Instead of acting as a pass-through account for routine expenses, an HSA can function as a dedicated, tax-advantaged investment vehicle. Contributions reduce taxable income. Growth is not taxed. Withdrawals for qualified medical expenses are not taxed. Few accounts in the tax code receive that triple advantage.

A Smarter Strategy

The long-term strategy is straightforward. After meeting the required cash minimum, the remaining balance is invested for growth. When a medical bill arrives, the expense is paid out of pocket, often with a credit card. The bill, receipt, and proof of payment are saved and organized carefully.

The HSA remains invested and continues compounding.

There is no deadline requiring immediate reimbursement. As long as the expense was incurred after the HSA was opened and proper documentation is maintained, reimbursement can occur years later. A withdrawal is then made from the HSA and transferred to a bank account, tax-free, to cover those earlier medical costs.

This approach allows families to preserve tax-free growth for as long as possible while still maintaining the ability to access funds later.

An Important Caveat

This strategy only works when medical expenses can be covered out of pocket without financial strain. If paying a bill would require carrying high-interest credit card debt, using the HSA immediately is the better choice. Avoiding interest costs should always come first.

The Long-Term Benefit

After age 65, HSA funds can be withdrawn for any purpose. Withdrawals used for medical expenses remain tax-free. Withdrawals used for other purposes are taxed as ordinary income, similar to a traditional IRA.

That rule provides flexibility and limits downside risk. If funds are not needed for medical expenses, the account can still serve as a supplemental retirement vehicle. If they are needed for health costs, they remain fully tax-free.

CFE Takeaway

The “Working Families Tax Cuts” broadened HSA eligibility by recognizing bronze plans, catastrophic plans, and direct primary care arrangements as qualified coverage. Millions more families can now contribute.

Eligibility alone is not enough. The real advantage comes from using the account correctly.

An HSA should not be treated like a debit card with a medical label. It should be treated like a long-term asset designed for tax-free growth. When used with discipline and proper documentation, it strengthens financial security over time.