Health Savings Accounts: Consumer Contribution Strategies & Policy Implications

Posted: 25 Jul 2017 Last revised: 24 Sep 2018

See all articles by David Lowsky

David Lowsky


Donald Lee

Yale School of Management

Stefanos A. Zenios

Stanford Graduate School of Business

Date Written: July 16, 2017


[Paper available by request] Health Savings Accounts (HSAs) are tax-advantaged savings accounts available only to households with high-deductible health insurance. This paper provides initial answers to two questions: 1) How should a household budget for its annual HSA contributions; and 2) Do current contribution limits provide households with the flexibility to use HSAs efficiently? To answer these questions, we formulate the household's problem as one of determining a contribution strategy for minimizing total expected discounted medical costs.

Methods: We use the 2002-14 Medical Expenditure Panel Survey to develop a novel data-driven model for forecasting a household's healthcare costs based on its current cost percentile and other characteristics. A dynamic policy, in which the contribution each year brings the HSA balance up to a household-specific threshold, is derived. This is compared to a simpler static policy in which the target HSA balance is simply the plan's out-of-pocket maximum, with contributions in any year capped by a limit.

Results. We find that: 1) The dynamic policy can save a household up to 19% in costs compared to the static one that is a proxy for typical contribution behavior; and 2) The recommended contribution amounts for 9%-11% of households in a given year materially exceed what is currently allowed by the federal government.

Conclusions. The dynamic policy derived from our data-analytic framework is able to unlock significant tax savings for healthcare consumers. To allow all households to use HSAs in a tax-efficient manner, a two-tiered contribution policy is needed: Allow unlimited contributions up to some balance, and then impose restrictions thereafter. The resulting impact on overall tax receipts is estimated to be well below what is currently allowed by legislation.

Keywords: Health savings accounts; HSA; healthcare cost forecasting; consumer-driven healthcare

JEL Classification: I13, I18

Suggested Citation

Lowsky, David and Lee, Donald and Zenios, Stefanos A., Health Savings Accounts: Consumer Contribution Strategies & Policy Implications (July 16, 2017). Medical Decision Making Policy & Practice (forthcoming). Available at SSRN: or

David Lowsky (Contact Author)

Independent ( email )

No Address Available

Donald Lee

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Stefanos A. Zenios

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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