Proponents of these deplorable Health Savings Accounts say they like them because consumers can take matters into their own hands in lots of ways: you can “shop around” for care (although, I’m not sure how we do this when we don’t have cost and quality transparency, yet) and you can save for health expenses in retirement.
A new EBRI study takes on the latter point head-on. Their research shows that consumers contributing the maximum to their HSAs (plus catch-up) will only have saved between 16 percent and 33 percent of what they will *actually* need in retirement to cover health expenses.
The study assumes that Medicare will cover half of what a person needs in retirement (about $376,000). With an HSA, an individual would accumlate $59,000 over 10 years (with the catch-up deposits).
A man with average health expenses and an average life span would need to have saved $132,000 to cover drugs, premiums and other out-of-pocket expenses in retirement. That’s more than twice what could be saved under the HSA. And that’s assuming he’s average and dies on time. If he lives longer, he’d need $266,000 — 4.5 times more than is in the HSA. In the most expensive scenario, he lives a long time with LOTS of health care needs — he’d need $555,0000.
Women have it even worse since we live longer. A retiring woman would need $181,000 to cover drugs, premiums and other out-of-pocket expenses in retirement. A woman who lives beyond the average life span, and incurs higher than average health costs needs $654,000. Add to this the gender wage gap and……
It’s unclear to me whether the savings projections EBRI takes into account the fact that consumes with HSAs will likely be using a chunk of the money they invest in the account because a prerequisite to having and HSA is being underinsured. Bush Administration rules require that consumers must be insured only by a high-deductible health plan (a deductible of *at least* $1,100) in order to open such an account. You also can’t save more than the deductible, so……
Seems like a bad deal all around:
* You can’t shop around
* You have a crummy health plan
* You’re *still* broke in retirement.
Don’t sign me up for that one.