This was the conclusion of a new study by the Employee Benefit Research Institute (EBRI). “The maximum savings that can be accumulated in an HSA will be far from sufficient to fully cover the savings needed in retirement for insurance premiums and out-of-pocket expenses,” EBRI said.
In its study report EBRI explained that a husband and wife both age 55 this year would be able to save $118,000 in a health savings account by 2018 if both made the maximum contributions allowed by law, including catch-up contributions. According to previous EBRI research, that same couple would need to save a combined $325,000 – $654,000 by the time they both reach age 65 in 2018 to have enough money to cover health premiums and out-of-pocket expenses 50% of the time. If the couple wanted to have a 90% chance of having enough money to cover premiums and out-of-pocket expenses, they would need to save from $511,000 to just over $1 million (See EBRI Pinpoints Retiree Health Expenses ).
The limitations cited by EBRI that make it unlikely that HSAs will play more than a minor part in savings for health care costs in retirement include:
- Contribution limits – This year the maximum contribution is $2,900 for an individual and $5,800 for families. Contribution limits and catch-up contributions are indexed for inflation.
- HSA qualification – In order to qualify for tax-free contributions to a health savings account, individuals must be covered by a qualified high-deductible health plan-one that has an annual deductible of at least $1,100 for individual coverage and $2,200 for family coverage in 2008.
- Use during working years – Because HSAs are linked to high-deductible health plans, it is likely HSA owners will tap their accounts to pay for medical expenses during their working years.
- Distribution rules – Distributions cannot be used for employment-based retiree health insurance until an individual has reached age 65. Thus, early retirees do not have immediate access to HSA accounts for retiree health premiums.
The study report is in the August EBRI notes available at www.ebri.org .