Fungibility in Saving: The Relationship Between Health Savings Accounts, 401(k)s, and Health Insurance Choices

by Adam Leive, Wharton School, University of Pennsylvania

While 401(k)s and IRAs represent the two most important tax-preferred saving vehicles, an important recent addition is the Health Savings Account (HSA). HSAs allows medical care and certain insurance premiums to be financed tax-free both while working and in retirement, but otherwise resemble 401(k)s. Little evidence exists on the relationship between HSAs and 401(k) saving or choice of health insurance plan. My research empirically analyzes these linkages using a novel administrative dataset from Humana, a large health insurer that implemented an HSA program and modified its insurance and retirement saving benefits between 2005-2010. The first component of the empirical analysis examines how HSAs affect total tax-preferred saving and tests whether money is treated as fungible between health care and other expenditures. I use cross-sectional and time-series variation in matching rates by salary level to distinguish income and price effects from violations of fungibility. The second part of the analysis studies how HSA saving relates to insurance deductible choices and tests whether HSA money is treated as fungible over time. To formally analyze the interaction of saving instruments with health insurance, I develop a structural model that builds saving decisions into a discrete choice model of insurance plan choice. The model of saving and insurance choices will be used to study the implications of various policies on saving, including adjusting the menu of insurance plans, the matching rates for 401(k) and HSA saving, and the tax treatment of HSA funds. Such counterfactuals will be helpful to coordinate HSA and 401(k) saving programs with health insurance offerings to achieve policy objectives of retirement preparedness.

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