HSA investing gap creates retirement planning risk for clients

Healthcare is the third most essential retirement need after food and shelter, and most Americans have no plan to fund it. For independent financial advisors, that gap is both a client risk and a planning opportunity.

Hans Leida, a principal and consulting actuary at Milliman who consults with health insurers, large employers, and government entities on healthcare cost risk, made that case in a conversation with Insurance Business Benefits US - and the numbers behind his argument are ones advisors should have in front of clients now.

According to the September 2026 release of the Milliman Health Trend Guidelines, healthcare cost inflation is currently running at 10.3 percent year over year, measured on claims incurred through April 2026 and paid through June 2026. With the Consumer Price Index sitting at 3.7 percent, healthcare inflation is running at approximately 280 percent the rate of broader price increases in the US economy.

But according to Devenir’s 2026 Midyear HSA Research Report, published October 13, 2026, only about 11 percent of all HSA holders - approximately 4.7 million of the 42.6 million accounts in the US market - held invested assets as of June 30, 2026.

“Sitting in cash is actually a risk,” Leida said. “The trend has been running for the last five years around 6.5 to 7 percent on average. So cash is actually a risk more than trying to meet that with the appropriate instruments.”

Quantifying the retirement healthcare liability

For advisors building retirement income plans, the 2026 Milliman Retiree Health Cost Index provides the most current benchmark available. Published by Milliman actuaries Robert Schmidt and Eric Walters in June 2026, it projects that a healthy 65-year-old couple retiring in 2026 needs approximately $418,000 in savings to cover lifetime healthcare costs - up approximately $28,000 to $30,000 from 2025 estimates. For a male retiree on original Medicare plus Medigap Plan G plus Part D, the required savings figure is $199,000; for a female retiree on the same pathway, it is $219,000, reflecting a longer projected life span.

Those figures represent a distinct liability that most retirement plans either underestimate or do not model separately and that compounds in real terms as long as healthcare inflation outpaces general price growth.

“People kind of get to that point and they’re like, ‘Oh no - did I save enough money for healthcare?’ Because I never really thought about it along the way,” said Adam Schenck, a partner at Milliman Financial Risk Management and co-lead of its fund business, who joined the conversation with Leida.

The HSA, both argue, is the most tax-efficient vehicle available for addressing this liability - offering a triple tax advantage on contributions, growth, and qualified withdrawals that no other retirement account matches. Milliman provides a free retirement healthcare costs calculator where advisors can model projected out-of-pocket costs for clients across Medicare Advantage and original Medicare plus Medigap scenarios.

A new asset class for the HSA allocation

Leida and Schenck spent more than three years developing two exchange-traded funds (ETFs) designed specifically to track healthcare cost inflation within an HSA or broader portfolio context. The Milliman Healthcare Inflation Guard and the Milliman Healthcare Inflation Plus both launched earlier in 2026.

The funds track Milliman’s Health Trend Guidelines claims data rather than the medical component of the Consumer Price Index (CPI) - a meaningful distinction for advisors. Medical CPI captures only unit cost changes; claims trend also captures utilization shifts and changes in the treatment mix, such as the evolution of diabetes care. “Medical CPI is really just tracking the unit cost,” Schenck said. “But then utilization and the basket of treating diabetes evolves over time. That’s called trend, and we need to really follow that.”

The Guard fund aims to meet the claims trend with minimum volatility, suited for clients who may need to access HSA funds in the nearer term. The Plus fund targets two percentage points above trend, taking more risk in healthcare equities, and is designed for younger clients in the accumulation phase.

For advisors evaluating HSA investment menus for clients, the Internal Revenue Service’s Publication 969 on health savings accounts and other tax-favored health plans provides authoritative guidance on contribution limits, qualified expenses, and withdrawal rules.

The shoebox strategy and the compounding case

One planning technique Leida confirmed that advisors should be discussing with clients: there is no time limit on reimbursing yourself from an HSA for past eligible medical expenses, provided you retain documentation - an itemized bill, an explanation of benefits, and proof of payment.

Known informally as the shoebox strategy, it allows clients who can pay current medical expenses from non-HSA assets to leave HSA funds compounding and withdraw tax-free against older receipts at a later date.

“The optimal approach,” Schenck said, “is to pay current expenses from non-HSA funds where possible and let the HSA compound - just because the tax protection on that is so great and the large balance you’re going to need.”

For advisors, the practical application is straightforward: for any client with sufficient liquidity to cover current medical costs from non-HSA assets, the HSA should be treated as a dedicated retirement healthcare savings vehicle - maximized annually, invested rather than held in cash, and drawn down last.

Leida’s closing argument was the most direct. “What I really wish someone had told me earlier in my career is that signing up for the HSA isn’t just for healthy people who expect not to have healthcare expenses. It is actually a way to get access to another vehicle like a 401(k) that provides significant value to you financially if you have the means and the discipline to make use of it. I am now an HSA investor. I have been for some time, but it took me longer to get there than I wish it had.”

For a leading healthcare actuary who works with this data every day, that admission should prompt a straightforward question for advisors to ask of every HSA-eligible client: is yours invested?