Key Takeaways

  • From January to December 2020, 13% of adults age 50-80 delayed seeking medical care because they were worried about costs, according to a new poll.
  • Only 29% of adults aged 50-80 saved money for health care before they needed it.
  • Tax-advantaged accounts can help people save for future medical expenses. However, they are being underutilized by older adults.

Healthcare costs have skyrocketed over recent years. In 2019, healthcare spending totaled about $11,582 per person. And as people get older, the need for care only increases.

A new report from the University of Michigan’s National Poll on Healthy Aging found that 18% of adults age 50 to 80 reported not feeling confident about being about to afford their healthcare costs.

The findings also suggest that tax-free health savings accounts are being used less by those who may need them most. The survey results were published in September.

Health Savings Accounts Are Being Underutilized

Jeffrey Kullgren, MD, MPH, MS, associate professor of internal medicine at the University of Michigan and contributing faculty to the poll, tells Verywell that cost-sharing—when patients pay for a portion of healthcare costs not covered by health insurance—has risen dramatically over the years.

“Cost-sharing has risen dramatically in the last couple of decades so the growth of deductibles in private health insurance plans has far outpaced the growth of premiums in those plans,” Kullgren says. “So it’s been a notable shifting of costs onto patients and families over that time period.”

For the poll, researchers surveyed 2,023 people aged 50 to 80. From January 2020 to December 2020, 13% of the poll’s respondents delayed medical care because they worried about the cost, and 12% needed medical care but could not afford it.

Tax-advantaged accounts can help people save for future medical expenses and cushion the financial blow. Although tax-advantaged accounts exist, they are used least by those who need them the most, Kullgren says.

“People who might benefit most from using some of those tax-advantaged savings vehicles, such as people with lower income, less education, and worse health status, were less likely to have access to those tax-advantaged savings accounts,” Kullgren says.

There are three types of tax-advantaged savings account people can use to save for healthcare costs:

  • Health Savings Accounts (HSAs): an account that allows individuals to set pre-taxed money aside for qualified medical expenses
  • Flexible Spending Accounts (FSAs): an account that allows employees to set aside pre-taxed dollars to use throughout the year to pay for out-of-pocket healthcare expenses
  • Health Reimbursement Arrangements (HRAs): employer-funded group health plan where employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount

The survey found that, of respondents aged 50 to 80:

  • 7% had an HSA
  • 12% had an FSA
  • 5% had an HRA

Benefits and Drawbacks of Tax-Advantaged Savings Accounts

Each type of savings account has benefits and drawbacks.

For FSAs, Kullgren says that people can put aside their tax-free dollars for out-of-pocket healthcare expenses. However, if the money is not utilized, it is forfeited at the end of the year.

“It’s kind of use it or lose it," Kullgren says. "That can be a challenge with those accounts. I think it’s likely that people often under-invested in them because they are worried about losing that money if they don’t end up spending.”

Unlike FSAs, HSAs roll over from year to year.

Amy O’ Meara Chambers, JD, COO and co-founder of HealthBridge, tells Verywell that HSAs are triple tax-advantaged.

“This means that withdrawals for qualified medical expenses are income-tax-free and any interest earnings and investment growth from deposits are income-tax-free,” Chambers says. The money in an HSA account is available year after year and can be used into retirement, she adds.

To qualify for an HSA, individuals must be enrolled in a high-deductible health plan.4 In 2021, the minimum deductible was $1,400 per individual and $2,800 for a family, Chambers says.

“Unless we see medical costs decreasing in the future or the U.S. health insurance system doing away with member cost-sharing, there will be a growing need for individuals to earmark a significant amount of their retirement savings for healthcare expenses, and HSAs are the best tax vehicles within which to grow and manage these funds,” Chambers says.

In the survey, HSA ownership was more common among:

  • Individuals age 50 to 64
  • Individuals with at least a bachelor’s degree
  • Those with an annual household income of at least $100,000

On the other hand, HRAs are employer-funded and funds in the account are owned by the employer. Similar to HSAs, HRAs may be rolled over.

What This Means For You

If you have a high deductible health plan, you can make pre-tax contributions to a health savings accounts. Experts say this can save you money on your taxes and allow you to put money away for future qualified medical expenses.

Helping More People Access Savings Accounts

Kullgren says that one way to increase accessibility for tax-advantaged accounts is to expand the eligibility criteria through legislation.

For example, only folks with high deductible plans qualify for health savings accounts. This could be expanded to include more groups.

“There may be other individuals who are also facing a lot of challenges affording their care who could benefit from a health savings account but are not eligible because they don’t have the right kind of plan,” Kullgren stresses. “So that might be an opportunity for policymakers to consider expanding health savings accounts and other tax-advantaged savings vehicles to broader populations that might be worthwhile.”