Health Care Costs Are Eroding Retirement Savings for 56% of Workers

Rising medical costs are steadily reducing retirement savings for many employees, and the impact extends beyond the workplace. One tax-advantaged account can help fill the gap, yet many workers pass it by during open enrollment.

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For most people with employer-sponsored coverage, health insurance premiums are taken from each paycheck before anything else. As those deductions climb while 401(k) contributions remain unchanged, retirement savings can shrink a little more each year. In the Employee Benefit Research Institute and Greenwald Research 2025 Retirement Confidence Survey, 56% of workers said health care costs are affecting how much they can save for retirement.

The strain does not end at retirement. The same 2025 survey found that 38% of retirees said their medical expenses were higher than expected. Inflation is making matters worse, with 70% of workers saying they worry they will need to cut back because of rising prices. Together, those figures reflect pressure on household budgets both during a career and after it.

Why Medical Costs Continue to Shrink Retirement Contributions

Employer coverage is typically shared between the company and the worker. The worker pays a premium, which is the fixed amount deducted from each paycheck, and also faces a deductible, which must usually be met before the plan begins covering most expenses. Industry data on employer plans has shown that more covered workers have been carrying higher deductibles over the past decade. When both premiums and deductibles rise, the money has to come from somewhere, and retirement contributions are one of the few budget items workers can reduce on their own.

Those costs do not disappear in retirement. Medicare’s standard Part B premium, which covers doctor visits and outpatient care, is $202.90 a month in 2026, up from $185. The average retired worker’s Social Security benefit is $2,071 a month after the 2026 cost-of-living adjustment. A recent 24/7 Wall St. review of the health care gap facing a 65-year-old retiree explores what a full retirement medical budget can include, and we also mapped out the surcharges and coverage gaps that can surprise retirees in a free Medicare guide.

An Account That Can Help Before and After Retirement

A health savings account, or HSA, is a tax-advantaged account designed for medical expenses. To make contributions, a person must be enrolled in a high-deductible health plan, must not have other disqualifying coverage, cannot be enrolled in Medicare, and cannot be claimed as another person’s dependent, according to IRS Publication 969. For 2027, a plan qualifies as high-deductible if the deductible is at least $1,750 for self-only coverage or $3,500 for family coverage.

The 2027 contribution limits, set by IRS Revenue Procedure 2026-24, are $4,500 for self-only coverage and $9,000 for family coverage. People who reach age 55 by the end of the year can add an extra $1,000 under federal law. Those 2027 figures matter now because elections made during open enrollment this fall apply to next year’s plan.

When people describe an HSA as offering a triple tax advantage, they are referring to its tax treatment. Contributions are deductible, employer contributions are excluded from income, account growth is not taxed, and withdrawals for qualified medical expenses are also tax-free, according to IRS Publication 969. The balance does not have to be spent every year.

The account can be invested and carried into retirement. After reaching Medicare age, it can be used to pay health insurance premiums, including Medicare premiums, though not Medigap policies, under 26 U.S.C. § 223(d)(2)(C)(iv). Qualified long-term care insurance premiums also qualify under 26 U.S.C. § 223(d)(2)(C)(ii), a point covered in a recent 24/7 Wall St. article on using an HSA to pay long-term care premiums.

How a Small HSA Contribution Could Add Up

One example uses straightforward assumptions. A worker who contributes $2,000 a year to an HSA for 25 years, invests the money, and earns an average annual return of 6% would end up with about $109,729.

Over that period, total contributions would equal $50,000, with the rest coming from investment gains. Actual returns vary from year to year, and any withdrawals for current medical bills would reduce the final balance.

Other Open Enrollment Decisions That Affect Savings

Workers who do not have access to an HSA-eligible plan may be able to use a health flexible spending account, or FSA. The 2026 FSA limit is $3,400, and plans that allow carryovers can roll over as much as $680 into the following year. Because most unused FSA money is forfeited, the account is better suited to short-term expenses than to building retirement savings.

During open enrollment, comparing plans generally means balancing premiums, deductibles, and out-of-pocket limits against how much care a household expects to use. Many workers also review whether their 401(k) contribution remains high enough to secure the full employer match after a premium increase, since lowering contributions can leave matching dollars on the table.

One Decision on This Year’s Enrollment Form

Among the choices on the enrollment form, the plan selection connects directly to the survey findings for both workers and retirees. Choosing an HSA-eligible plan and funding the account determines whether some health care dollars remain available to grow for retirement or are spent within the year. For workers whose expected medical needs fit a high-deductible plan, the 2027 limits of $4,500 and $9,000 set the maximum amount they can set aside next year.