HSA Savings Can Cover Much Of The Cost Of Retiree Health Costs For Older Workers

Consumer Driven Market Report

A new Employee Benefits Research Institute analysis of the required savings to meet retiree health costs shows many older workers can save enough in an HSA to cover post-65 health costs even if starting as late as age 55.

The median savings needed is $102,000 for a man and $137,000 for a woman, assuming they have no post-retirement employer-sponsored coverage. The maximum 2008 HSA contribution for age 55+ individuals with family coverage is $6,700. If that contribution is made every year into an account with a 5% annual interest rate, the HSA reaches over $84,000 by age 65, representing a major portion of retiree health needs based on the new estimate.

All available studies, including the GAO report to Congress, show HSA contributions are exceeding HSA distributions by a large percentage, even in early populations. This fact validates the argument that HSAs are a viable retiree health model for a portion of U.S. workers. The new numbers are important because many benefits consultants, banks, and carriers are seeing a fast-rising demand from employers for some form of defined contribution combined with HSAs for pre-retirees to try to capitalize future retiree health spending.

For example, an employer wanting to provide retiree health benefits, but not within a full defined benefit plan, can simply make maximum HSA contributions to 55-year-old workers for 10 years and reach the savings needed to cover most out-of-pocket costs for the employee during retirement. If HSAs are started by an employer for all workers, with the average workforce age of 42, all out-of-pocket costs can be covered.