With annual employer open enrollment underway at many workplaces, it is tempting to check the box for last year’s health insurance plan and move on. But a few minutes spent comparing your options could make a meaningful difference in next year’s health care costs—and your tax bill.
One option worth a closer look is a high-deductible health plan that allows you to contribute to a Health Savings Account, or HSA. These accounts offer valuable tax benefits, but the health insurance coverage behind them needs to fit your budget and your family’s medical needs. This type of account is often confused with a Flexible Spending Account, or FSA – the “use-it-or-lose-it” health tax account.
Before you make your elections for 2027, here is how to evaluate the opportunity.
First, understand what you are comparing
An HSA is a savings account, like a bank account you own, while a PPO—short for Preferred Provider Organization—is a type of health insurance network. They are not mutually exclusive: an HSA-eligible health plan can also use a PPO network.
In an employer’s enrollment materials, the practical choice is often between an HSA-eligible high-deductible health plan and a traditional PPO option with a lower deductible. Look at the actual benefits rather than relying on the plan names. PPO arrangements generally allow out-of-network care at a higher cost, but the specific network and coverage rules matter.
Why HSAs deserve your attention
HSAs offer three federal tax advantages:
- Eligible contributions reduce taxable income.
- Earnings grow tax-free.
- Withdrawals are tax-free when used for qualified medical expenses.
Your balance rolls over from year to year, and the account stays with you when you change jobs or retire. That makes an HSA useful for both current bills and future medical expenses even if you no longer have a high-deductible, HSA qualified plan.
There can also be an additional benefit to contributing through work. HSA salary reductions made through an employer’s Section 125 cafeteria plan generally avoid Social Security and Medicare taxes, in addition to federal and state income tax. A direct contribution outside payroll generally does not provide that same payroll-tax savings.
For example, an eligible $3,000 contribution could save $660 in federal income tax for someone whose entire deduction falls within the 22% bracket. Add payroll tax savings of $230 and state income taxes (if applicable) and your $3,000 contribution was made using only $2,000 of your cash. Some employers also contribute to employees’ HSAs. Include that contribution in your comparison for some serious savings.
Know the contribution limits for 2027
For employees choosing next year’s coverage, the 2027 HSA contribution limits are:
Coverage | Annual contribution limit |
Self-only | $4,500 |
Family | $9,000 |
These are the IRS limits for 2027, rather than the limits for the current 2026 tax year. Employer and employee contributions count toward the same limit. Eligible individuals age 55 or older can contribute an additional $1,000; each eligible spouse must make their catch-up contribution to their own HSA. Partial-year eligibility can affect the amount allowed.
When an HSA-eligible plan may be a good fit
An HSA-eligible plan may be attractive if its premiums are lower, your employer contributes to the account, and you have enough savings to handle medical bills before meeting the deductible. These plans may cover certain preventive services before the deductible, but other care can require more upfront spending. HSA funds can help pay eligible deductibles, copayments, prescriptions, and certain dental and vision expenses. They generally cannot pay ordinary health insurance premiums.
The opportunity is especially useful when you can put some of the premium savings into the HSA instead of absorbing them into everyday spending.
Do not assume these plans are only worthwhile for people who rarely visit a doctor. Depending on premiums, employer contributions, and out-of-pocket limits, an HSA-eligible plan can also be competitive in a year with substantial medical expenses. You need to run the numbers.
When a traditional PPO option may be more advantageous
A lower-deductible PPO option may be worth its higher premiums when its benefits reduce your expected expenses enough to justify the difference. That could be the case if:
- There is a lower, out-of-pocket maximum amount than the HSA plan option.
- Your prescriptions have significantly better coverage under that plan.
- Copayments make routine care more affordable and predictable.
- The plan offers better access to your preferred doctors or hospitals.
- A large bill early in the year would strain your savings.
These are reasons to investigate the PPO option, not automatic reasons to select it. Frequent medical care does not always make a PPO cheaper. A PPO label does not guarantee a better network, and if the out-of-pocket maximums are the same, evaluating your total premiums and tax savings may help you make the decision.
Cash flow matters, too. A plan that looks less expensive over a full year may still be difficult to manage if you must pay a large deductible in January.
Check eligibility before electing contributions
Confirm that your employer identifies the plan as HSA-eligible. Medicare enrollment and other coverage—including a general-purpose health FSA that covers you through your spouse—can disqualify you from contributing. Limited-purpose dental and vision FSAs may be compatible.
Make open enrollment part of your tax planning
The best choice balances total cost, access to care, tax savings, and your ability to handle unexpected bills.
Before you automatically renew last year’s elections, review what has changed in your benefits and your household. An HSA can be a valuable financial tool, but its greatest benefit comes when it is paired with coverage you can comfortably use.
Our team can help you evaluate the tax side of your benefit elections and how HSA contributions fit into your broader financial picture. Reach out before your employer’s enrollment deadline so you have time to make an informed decision.