In 2020, the United States had a gross domestic product (GDP) per capita of $63,487. In the same year, healthcare spending per capita hit $11,945, implying that the nation spent nearly 19% of its GDP per capita on healthcare.
This fraction is nearly double what peer countries spend on healthcare. For comparison, Norway’s GDP per capita in 2020 was $68,359, but the Scandinavian country spent just $6,748 on healthcare per capita — a little under 10% of its GDP per capita.
It’s no surprise, then, that healthcare in the United States is rather expensive. Luckily, certain highly tax-advantaged accounts, like a Health Savings Account (HSA), can help you offset some of these costs.
And an HSA isn’t strictly a savings account. While you can treat it as a rainy-day fund and keep it all in cash, it might be a better idea to put your HSA balance to work instead, especially if you don’t anticipate any healthcare expenses in the near future or you have a substantial account balance.
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Investing in your HSA
In 2022, the HSA contribution limit is $3,650 for individuals and $7,300 for families. To qualify for an HSA, you or your family must be enrolled in a high deductible health plan (HDHP), with a deductible of at least $1,400 for individuals or $2,800 for families.
While this contribution limit might not seem like much — and might not cover even a year’s worth of healthcare expenses in some cases — it can add up over time. If you go for several years without needing to withdraw from your HSA for healthcare, you could have a significant amount in the account.
For example, suppose you contribute the HSA limit every year for three years and make no withdrawals during that period. By the end of year three, you will have nearly $11,000 in the account.
Yet, that’s assuming you let your money sit in cash and earn no interest. What if you invested your money instead? If you put the money in a broad-market equity index fund like the Vanguard Total Stock Market Index Fund ETF (NYSEMKT: VTI) and achieve a compound annual growth rate (CAGR) of 10% (roughly equal to the long-run average annual return of the underlying index), you would have just over $12,000, or about $1,000 more than if you hadn’t invested at all.
But what if you did this for an extended period of time — for 10, 20, or even 30 years? Here are the numbers:
Length of Time
Cash Only (0% CAGR)
Bear Case (8% CAGR)
