This is the Cato Daily Podcast for Friday, October 29th, 2021.

I'm Caleb Brown. Health savings accounts can dramatically improve the ways in which

Americans engage with their own health care spending,

but HSA's are also an unsung investment tool.

Cato's Michael Cannon details how aggressive savers can take advantage of HSA's to both lower health care expenses and save

for retirement.

The Health Savings Account, which is both a financial innovation and an innovation for paying for health care.

It is I think underappreciated the degree to which it is a pretty fabulous investment vehicle given a few circumstances.

So if you wouldn't mind, just walk us through one, just the general elements of an HSA and two why that it performs so well as a vehicle for investment.

So to understand why the HSA is such a good investment vehicle, you have to understand the purpose of the HSA, which is to correct for the perverse incentives in the way federal tax code treats employer-sponsored health insurance.

The federal tax code completely distorts not just our health insurance choices, but also our medical consumption choices, because there's this weird tax preference for employer-sponsored insurance that doesn't exist for other ways of paying for health care or health insurance

and that that what we call the tax exclusion for employer-sponsored insurance, that distortion of our health

insurance and medical decision-making is so huge and so profound that when you

try to eliminate it by creating these things called health

savings accounts, which are tax-free accounts where you can put money in tax-free and use that money

to pay for your out-of-pocket medical expenses, because the

HSA's are supposed to mimic the tax treatment of employer-sponsored insurance, they're

this tremendously valuable, they end up being this tremendously valuable savings vehicle

where the money you put into your health savings account is tax-free.

The IRS excludes it from your income and payroll tax basis, so tax free going in.

The money in your account grows and when it grows it grows tax free.

The government doesn't tax the interest or the

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