As household health careexpenses increase, they take money away from other householdexpenses, making it harder to take advantage of the tax benefits ofHSAs.  (Photo: Shutterstock)

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In 2018, the overwhelming target of spending from health savings accounts was for everyday healthcare needs, with 93 percent of the money going to pay for thoserather than being used for major “surprise” expenses such asemergencies and hospital visits. And thatleaves the potential for HSAs to aid in retirement planning completely out inthe cold.

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According to Lively, Inc.'s first annual HSA Spend Report, that 93percent broke down as follows:

  • Doctor visits and services (41 percent)
  • Prescription drug costs (25 percent)
  • Dental care (9 percent)
  • Vision and eyewear (5 percent)
  • Chiropractor (5 percent)
  • Lab work (4 percent)
  • Other (4 percent)

Emergencies and hospitalizations were left with the remaining 7percent, while dedicating any funds to long-term savings against health care expensesin retirement was apparently beyond people—despite the fact thatretirement health care costs are expected to hit $280,000 percouple, over and above Medicare coverage.

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Related: 10 HSA questions employers & employeesask

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Health care spending is up 3.9 percent year over year, accordingto the report, with costs rising faster than inflation, andalthough HSAs provide an additional opportunity for workers to savefor retirement, it appears to be a moving target that stays out ofreach—with HSA funds going to pay for health expenses instead ofbeing allowed to grow.

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To try to determine just what constituted the biggest drain onHSAs, the authors sought to identify the expenses that ateup the most money. The study compared survey responses on consumerspending habits with data from the Center for Medicare and MedicaidServices to understand the similarities and differences between HSAspending and national health care spending. CMS data peggednational health care spending in 2017 surpassed $3.5 trillion, or$10,739 per person. And as household health care expenses increase,they take money away from other household expenses, making itharder to take advantage of the tax benefits of HSAs.

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Research finds that as personal household out-of-pocket healthcare expenses rise faster than inflation, making up 37 percent ofpersonal household expenses, smaller expenses such as physician andclinical services ate up 41 percent of HSA money, with prescriptiondrugs coming in second at 25 percent and hospital expenses 7percent.

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But nationally, expenses break down differently, with hospitalexpenses making up the majority at 33 percent; that's followed byphysician and clinical services costs at 20 percent and finallyprescription drugs at 10 percent. According to the report, thediscrepancy arises from HSA users being younger than the public atlarge and thus less likely to need hospitalization.

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In addition, it's easier to use HSA savings to pay forprescriptions—possibly accounting for the large difference inprescription spending—and when it comes to dental work, the averageHSA user spends more than double on dental work, at 9 percent, thanthe national average of 4 percent. But because HSAs provide pretaxfunds, HSA users have lower total out-of-pocket expenses than theaverage American.

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“Health care costs continue to squeeze American families, risingfaster than wages can keep up,” says Alex Cyriac, cofounder and CEOof Lively. “This forces families to use their HSA funds foreveryday necessities—like preventive visits, dental or vision care,and prescription drugs—rather than investing those funds to createa safety net for health care costs in retirement.”

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.