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The new tax-free health savings account made possible under new Medicare law will be of little benefit to those already 55 or older, a report from the Employee Benefit Research Institute (EBRI) concludes.
In addition to its controversial prescription drug benefit, the new Medicare law enacted in December 2003 allows workers to set up health savings accounts (HSAs) to help them prepare for the medical bills they will face in retirement.
HSAs will allow those who elect to purchase high-deductible health insurance policies ($1,000 a year or more) to save up to several thousand dollars annually on a tax-free basis. But because of contribution restrictions and the reality that some of the saved money might be used to pay current expenses for health care services, the amount of money that an individual can accumulate in an HSA is limited.
In a new Issue Brief, the Employee Benefit Research Institute (EBRI) concludes that HSAs "will have a negligible potential benefit for those already 55 years old or older and would be structurally incapable of producing enough savings to substantially offset retiree health expenses."
EBRI calculates that an individual age 55 in 2004 could save a maximum of $44,000 in an HSA by the time he or she reaches age 65.
"This is nowhere near enough money to completely pay for insurance premiums and out-of-pocket expenses in retirement," EBRI states, noting that an individual will need $137,000 if he or she only lives to age 80 and insurance premiums and maximum out-of-pocket expenses increase 7 percent annually.
For the executive summary of the Issue Brief, "Health Care Expenses in Retirement and the Use of Health Savings Accounts," go to: http://www.ebri.org/ibex/ib271.htm
For ordering information, go to: http://www.ebri.org/store/ebriib.htm
For more on HSAs, go to: http://www.elderweb.com/default.php?PageID=2970
Medicaid Rules, etc