Health Savings Accounts have a limited role in funding retirement health, study says
Posted on 07 August 2008
By Mark Miller
Permanent URL of this article: http://retirementrevised.com/money/health-savings-accounts-have-a-limited-role-in-funding-retirement-health-study-says
The limits on contributions to Health Savings Accounts (HSAs) make it unlikely that these accounts will play anything more than a minor role in how retirees fund their health care expenses, according to new research by the Employee Benefit Research Institute (EBRI). HSAs were created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. They’re tax-advantaged savings accounts that allow funds to roll over year to year, and are portable when employees leave jobs.
EBRI’s research notes that the statutory maximum amounts that can be saved in HSAs make it unlikely that the accounts will amount to much in the broader picture of soaring health expenses for most retirees. The limitations noted by EBRI include:
–Contributions are limited. 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.
–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.
–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. In addition, 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.
Earlier EBRI research showed that 12.5 million individuals are in high-deductible insurance plans, but that 42 percent didn’t have an HSA account.
