Saving for Health Care Expenses in Retirement: The Use of Health Savings Accounts

This paper examines the savings needed to cover health insurance premiums and out-of-pocket expenses for health care services in retirement and evaluates the use of health savings accounts (HSAs) to save for those expenses. Proponents of HSAs often tout them as a vehicle for funding future retiree health care costs. But, while HSAs represent an important option for consumers seeking more control over their health care spending, statutory contribution limits make it unlikely that these accounts will play more than a minor part in savings for health care costs in retirement. This research shows that while HSAs can be used to save for health care expenses in retirement, 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. One of the difficulties in using an HSA to save money for premiums and out-of-pocket expenses during retirement is that individuals also can (and may need to) use the money in the account to pay for health care services during their working years or to pay COBRA premiums and insurance premiums during periods of unemployment. PDF for the above title, published in the August 2008 issue of EBRI Notes, also contains the fulltext of another August 2008 EBRI Notes article abstracted on SSRN: The Impact of Immigration on Health Insurance Coverage in the United States, 1994-2006.