As a locum tenens physician or APP, you’re already used to navigating a unique healthcare and financial landscape.
You prioritize flexibility in your career. Why not apply the same principle to your health coverage? A Health Savings Account (HSA) could be one of the most underutilized tools in your financial strategy, especially when paired with a high-deductible health plan (HDHP).
But first, let’s break down what an HSA is, why it works so well for locum providers, and how it can help you keep more of what you earn.
HSAs: A Smart Financial Strategy for Locums
Regardless of whether you contribute to an HSA directly as an individual or through a business structure (such as an S-corp or LLC, which many locum tenens physicians utilize), HSAs stand out as a highly effective financial strategy. They offer several key advantages that are particularly beneficial for locum tenens providers:
- Tax-deductible contributions: HSA contributions reduce taxable income, offering immediate tax savings. This is particularly useful for locum tenens providers with fluctuating incomes, as it helps manage tax liability.
- Tax-free growth: Similar to a traditional IRA or 401(k), HSA funds grow tax-free, crucial for building a substantial healthcare nest egg.
- Tax-free withdrawals for qualified medical expenses: This includes a wide range of costs, such as doctor visits, prescription medications, dental and vision care, as well as certain long-term care insurance premiums.
- Flexibility and portability: HSAs are individually owned, making them fully portable, a significant advantage for providers working with different locums agencies or healthcare facilities.
- Investment opportunities: Some HSAs allow you to invest funds in mutual funds, exchange-traded funds (ETFs), or other securities, accelerating savings growth beyond traditional accounts.
- Dual-purpose retirement savings: After the age of 65, penalty-free withdrawals for any purpose are allowed, though non-medical withdrawals are taxed like a traditional IRA.
By strategically utilizing HSAs, locum tenens physicians can not only reduce their current taxable income but also build a robust financial foundation to address both immediate and future healthcare needs, ensuring greater financial stability and peace of mind throughout their careers and into retirement.
Who’s Eligible for an HSA?
To qualify for an HSA in 2025, you must:
- Be enrolled in a qualifying high-deductible health plan (HDHP).
- Have no other disqualifying health coverage.
- Not be enrolled in Medicare.
- Not be claimed as a dependent on someone else’s tax return.
HDHPs generally offer lower premiums but require higher out-of-pocket payments. When paired with an HSA, you can manage those costs more strategically and save for future expenses.
HSA vs FSA: What Locums Need to Know
Flexible Spending Accounts (FSAs) may sound similar to HSAs, but there are key differences, especially for independent contractors:
- FSAs are employer-owned. If you leave a job, you lose access to unused funds.
- “Use it or lose it” rules mean that any unspent FSA funds may be forfeited at year-end.
- HSA funds roll over annually and are yours to keep, even if you switch jobs or stop working.
For physicians earning 1099 income or managing multiple contract roles, HSAs offer greater flexibility and long-term benefits than FSAs.
Long-term Investment
One of the best benefits of an HSA is the ability to invest unused funds. Many HSA providers allow you to allocate your balance into mutual funds or ETFs. Over time, this can become a substantial expense in retirement.
At The Doctor’s CPA, we often help clients integrate HSAs into their long-term investment strategy alongside other tax-advantaged retirement plans.
Understanding HSA Contribution Limits for 2025
For 2025, the Internal Revenue Service has set specific maximum HSA contribution limits:
- Individuals: An eligible individual can contribute up to $4,300 to their HSA. This limit applies to those with self-only high-deductible health plan (HDHP) coverage.
- Families: For those with family HDHP coverage, the contribution limit increases significantly to $8,550. This enables a more substantial accumulation of funds to address broader family healthcare needs.
- Catch-up contributions: Recognizing that healthcare costs often increase with age, individuals aged 55 and older are permitted to make an additional $1,000 “catch-up” contribution. This allows older locum tenens physicians and APPs to accelerate their savings as they approach retirement.
These limits are established annually by the IRS and are subject to change. It’s always advisable to refer to the official IRS publications, such as Revenue Procedure 24-25, for the most up-to-date information.
Eligible HSA Expenses: More Than Just Doctor Visits
You can use your HSA to cover a wide variety of qualified medical expenses, including:
- Prescription medications
- Physical therapy
- Mental health counseling
- Vision care
- Dental work
- Medical devices, such as hearing aids and crutches
The funds in your Health Savings Account can be utilized to cover a wide variety of qualified medical expenses, encompassing both anticipated and unexpected healthcare needs. This flexibility is a key advantage, allowing you to pay for essential services and products with tax-free dollars.
Choosing the Right HDHP for Locum Tenens Providers
Locum tenens providers are some of the best candidates for HDHP plans. Here are a few things to keep in mind when choosing an HDHP plan:
- Anticipate your health needs: If you’re generally healthy, an HDHP may be a cost-effective option, especially when paired with HSA savings.
- Account for income variability: HDHPs offer lower monthly premiums, ideal for physicians with fluctuating schedules.
- Consult your CPA: Your HDHP should support your business structure and tax strategy. A financial advisor with physician expertise can help you make informed decisions.
Getting Started: How to Set Up an HSA
Ready to take advantage of this triple tax-advantaged account? Follow these steps:
- Confirm eligibility by reviewing your HDHP and health coverage.
- Select an HSA provider that offers competitive fees and a range of investment options.
- Open your account online with the necessary identification and documents, including your Social Security number and driver’s license.
- Start contributing. Use automatic transfers or set aside a portion of your 1099 income on a regular basis.
Your HSA is portable, meaning it stays with you regardless of your job or contract changes, which is perfect for the locum lifestyle.
Pair HSAs with Retirement Strategies
HSAs work well in conjunction with other self-employed retirement accounts, such as Solo 401(k)s or SEP IRAs. By combining these tax-saving tools, you can reduce your annual tax bill while building both short-term security and long-term wealth. Explore our guide to retirement savings for locums providers to learn more.
Final Thoughts: A Simple Step Toward Financial Health
At The Doctor’s CPA, we help locum physicians and APPs create tailored financial strategies that include every opportunity to save and grow, including smart use of HSAs. Whether you’re just starting your locum journey or have been in independent practice for years, integrating an HSA into your broader financial plan can lead to thousands of dollars in savings and peace of mind.
Ready to make your health savings work for you?
Schedule a consultation with The Doctor’s CPA and discover how our specialized expertise can help you unlock every advantage as a locum tenens provider.