EBRI: HSA Alone Is Not Enough

For example, a 55-year old worker could save a maximum of $44,000 in an HSA prior to reaching retirement at age 65. However, if that worker lives to 80, they might need $137,000 to pay premiums and out-of-pocket medical expenses and if the worker lives to 90, the expected health-care costs go up to a possible $250,000 , according to projections conducted by the Employee Benefit Research Institute (EBRI).

The picture for younger workers is not much brighter. Looking across a 40-year career, EBRI said a younger worker could save more than $300,000. This amount would still be inadequate, though, given that medical costs grow significantly more quickly than the economy does generally, EBRI said.

Part of the reason is the restrictions placed on HSAs – accounts that 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. An individual who contributes $1,000 each year starting in 2007 and makes catch-up contributions can accumulate $23,000 after 10 years, $47,000 after 20 years, $81,000 after 30 years, and $127,000 after 40 years.

Thus, EBRI says an HSA cannot be looked at as an overall panacea for retirement health-care costs. Rather, HSA should be viewed as part of the overall retirement savings picture. “If the availability of HSAs encourages today’s workers to focus on the issue, that will be a constructive step,” said EBRI President and CEO Dallas Salisbury, “but merely starting an HSA is no guarantee that a growing problem will be resolved.”

The HSA analysis is found in EBRI’s July 2004 Issue Brief. Paul Fronstin, director of EBRI’s health research and education programs and Salisbury, authored the report.