Interest In HSAs On The Rise Among Employees

More than two-thirds of employees are interested in Health Savings Accounts (HSAs), a survey by CIGNA Healthcare found. But a study by the Employment Benefit Research Institute (EBRI) has warned that the new tax-advantaged accounts, created as part of the 2003 Medicare legislation, will nearly always fall short of completely meeting the costs of health care in retirement.

When presented with a list of possible options for their health care plan, employees across an age range of 18-59 showed similar levels of overall interest in a plan that includes an HSA, according to CIGNA.

Respondents reported finding several features of the HSA particularly appealing, including the opportunity to secure tax-free earnings or investment income and carryover funds from year-to-year. Some 80% said they would be interested in an account they could take with them when they change jobs, while 65% said they would be attracted by the opportunity to invest the money. Nearly 80% said they would like to use an HSA to help pay for health care after they retire, and more than half said they would find it appealing if the account included a debit card or check that they could use to pay for health care expenses.

But the employees surveyed were less certain about the concept of the high deductible health insurance policy associated with the HSA. Some 48% of the respondents said they preferred to have a health care plan with higher payroll deductions or premiums, but lower deductibles; while just 35% said they would rather have a plan with lower payroll deductions or premiums, but higher deductibles.

Commenting on the results of the survey, Tom Croswell, CIGNA Healthcare's senior vice president for Consumerism and Integration, said, "This shows a level of consumer uncertainty about how a health savings account plan would apply in their personal circumstances, but it also indicates receptivity to the idea of such an account. It also highlights an opportunity to provide consumers with more choices and information to help them choose a health care plan that's right for them."

In addition, the survey found that 58% of respondents said they would like to have data that allowed them to forecast how much their medical care will cost in the future so that they can select the right health care plan.

The EBRI study suggests, however, that the HSA may not be adequate to address the health care needs of people after retirement. For people already age 55 and older, researchers note, the HSA would, due to contribution limits, be incapable of producing enough savings to substantially offset retiree health expenses. An employee who is 55 years old in 2004 would, by age 65, only be able to contribute a maximum of $44,000 to an HSA—far less than would be needed to cover insurance premiums and out-of-pocket medical expenses in retirement.

EBRI estimates that a retiree who lives to age 80 will need around $137,000 to pay for insurance and other medical expenses, assuming a 7% annual increase. A retiree who lives to age 90 could need as much as $250,000 to cover health-related costs.

Workers who are now in their twenties would not fare much better in retirement, EBRI concludes. While an employee could, in theory, save more than $300,000 in an HSA over a 40-year period, the value of this sum would likely be substantially eroded by increased health care costs, which tend to outpace the overall rate of inflation.

"If the availability of HSAs encourages today's workers to focus on the issue, that will be a constructive step," said EBRI president and CEO, Dallas Salisbury, "but merely starting an HSA is no guarantee that a growing problem will be solved."