Tax Expenditures and Employee Benefits: Estimates from

HSA CONTRIBUTION LIMITS: Health savings accounts (HSAs) are often touted as a vehicle for funding future retiree health care costs. However, statutory contribution limits mean that they are unlikely to play more than a minor part in savings for health care costs in retirement. POSSIBLE ACCUMULATIONS AT CURRENT INTEREST RATES: If an individual age 55 in 2009 were to contribute $3,000 to his or her HSA and also contribute the $1,000 catch-up contribution each year for 10 years, $48,300 would be in the account after 10 years at a 2 percent interest rate. And if the interest rates was 5 percent, $55,100 would be accumulated at the end of 10 years. NEEDED HEALTH SAVINGS: Such savings levels by themselves are inadequate to cover health costs in retirement. A man age 55 in 2009 would need between $144,000–$290,000 by the time he reached age 65 in 2019 (depending upon his use of prescription drugs in retirement) to have a 50 percent chance of being able to cover premiums and out-of-pocket expenses for Medigap and Medicare Part D. Thus, a 55-year-old man would be able to use an HSA to accumulate between 16–32 percent of needed savings for insurance premiums and out-of-pocket expenses in retirement for a 50−50 chance of having enough savings. For a 90 percent chance, the maximum HSA savings would cover between 7–16 percent of the necessary savings amount. Women, who live longer than men on average, will need more