Health savings accounts are likely to play a minor part in savings for health care costs in retirement, according to a new report.
The study by the Employee Benefit Research Institute, Washington, arrives at this conclusion because both statutory contribution limits and currently low interest rates constrain the amount HSAs can generate, compared with the large amount needed to pay for retiree health expenses.
HSAs are tax-exempt trusts or custodial accounts that individuals can use to pay for health care expenses.
EBRI’s report evaluates the use of HSAs to generate savings needed to cover health insurance premiums and out-of-pocket health care expenses in retirement. It used data on estimated Medicare payments along with earlier EBRI research on retiree health costs.
Based on current interest rates, if individuals age 55 in 2009 were to contribute $3,000 to their HSA and also contribute the $1,000 catch-up contribution each year for 10 years, $48,300 would be in the account after 10 years at a 2% interest rate, EBRI says. If the interest rate were 5%, $55,100 would be accumulated at the end of 10 years.
But the study concludes the savings levels are inadequate to cover health costs in retirement. The report finds that: