As health insurance costs climb, how to make the most of medical spending before year's end

Healthcare costs are projected to significantly increase, with employer-sponsored plan premiums expected to rise 6-7% in 2026 and Affordable Care Act marketplace premiums potentially more than doubling if enhanced tax credits expire. This trend is prompting financial advisors to highlight year-end strategies for individuals to leverage tax benefits and pre-tax savings vehicles. Key recommendations include optimizing medical expense deductions, strategically timing medical services to utilize deductibles and out-of-pocket maximums, and maximizing contributions to Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) to mitigate the financial burden of rising healthcare expenditures.

Analysis

Healthcare costs are projected to escalate significantly, with employer-sponsored plan premiums anticipated to rise by 6-7% on average in 2026, according to Mercer. Furthermore, premiums for Affordable Care Act marketplace plans could more than double, averaging a 114% increase, if enhanced premium tax credits expire as scheduled at year-end, as reported by the Kaiser Family Foundation. These increases underscore a growing financial burden on households, necessitating proactive financial planning.

To mitigate these rising costs, individuals can leverage specific tax strategies and account benefits. The medical expense tax deduction allows for expenses exceeding 7.5% of adjusted gross income, though it requires itemizing deductions, which most taxpayers do not do given the 2025 standard deductions of $15,750 for individuals and $31,500 for joint filers. Strategic timing of medical services, such as scheduling procedures before year-end to meet deductibles or out-of-pocket maximums, can also reduce immediate costs.

Flexible Spending Accounts (FSAs) offer a pre-tax savings vehicle with a 2025 maximum contribution of $3,300, though they typically operate under a 'use-it-or-lose-it' rule by year-end, with some employer exceptions for grace periods or carry-overs up to $660. Health Savings Accounts (HSAs), available with high-deductible plans, provide a more flexible, tax-advantaged option, allowing funds to grow tax-free and be withdrawn tax-free for qualified medical expenses, with 2025 limits of $4,300 for individuals and $8,550 for families.

The potential expiration of ACA tax credits represents a significant regulatory risk that could exacerbate premium increases for a substantial segment of the population. While no specific tickers are identified, the broader implications point to sustained pressure on consumer discretionary spending and potential shifts in demand within the healthcare services and insurance sectors as individuals seek to optimize their medical expenditures.

Key Decisions for Investors

• Investors should monitor legislative developments regarding the potential expiration of enhanced ACA premium tax credits, as their lapse could significantly impact consumer spending and healthcare affordability.
• Consider the potential impact of rising healthcare costs on consumer discretionary spending and household budgets, which may affect sectors sensitive to consumer demand.
• Advise clients to review their personal healthcare spending strategies, including optimizing FSA/HSA contributions and timing medical procedures, to mitigate the financial impact of increasing premiums and out-of-pocket expenses.
• Evaluate healthcare sector investments with an eye towards companies that may benefit from cost-containment solutions or those less exposed to individual premium fluctuations, given the projected increases.