A new study that compares the amount of money that can be saved in a tax-advantaged
Health Savings Account (HSA) with the sum required to fund health care costs
during retirement reveals "a dramatic mismatch," according to the
nonprofit group that conducted the study, the Employee Benefit Research Institute
EBRI reports that while HSAs offer the possibility of helping meet the costs
of health care in retirement, they will nearly always fall far short of totally
meeting that need, which can, in some cases, exceed $500,000.
HSAs, recently created under legislation backed by the Bush administration,
allow purchasers of health insurance plans with a large deductible to put aside
untaxed funds that can be used to meet current or future health expenses.
EBRI, founded in 1978 with the purpose of encouraging "sound employee
benefit programs and sound public policy through objective research and education,"
said it created the best possible case in its study by assuming that HSA participants
will save the maximum permissible amount and not use any funds in the HSA to
pay for current expenses.
Despite that, the organization concludes there would be a significant disparity
even in the few cases where these optimistic assumptions were relevant.
The new study, contained in the EBRI's July 2004 Issue Brief was
written by Paul Fronstin, director of EBRI's health research and education
program and EBRI President and CEO Dallas Salisbury. Not surprisingly, the study
concludes that such accounts would be most helpful to those at the start of
their careers. Specific examples include these situations:
- An individual now 55 years old could save a maximum of $44,000 in an HSA
prior to reaching the benchmark retirement age of 65. But such an individual
living to age 80 might need $137,000 to pay premiums and out-of-pocket medical
expenses. An individual who lived to age 90 might need $250,000.
- Young workers could save more than $300,000 in an HSA over a 40-year career,
but this amount would not be adequate to meet health care costs in retirement
as long as medical costs grow significantly more quickly than the economy
The study stresses the need for greater savings for health care costs in retirement,
particularly because employment-based retiree health benefits are being capped
or eliminated, giving individual retirees greater responsibility. HSAs could
be a useful tool in helping meet this need, the study concludes, but cannot
be seen as a total solution.
"If the availability of HSAs encourages today's workers to focus
on the issue, that will be a constructive step," concluded Salisbury, "but
merely starting an HSA is no guarantee that a growing problem will be resolved."