A new study has found that the efforts to shift retirement and health care risks to workers through 401(k) retirement savings accounts and health savings accounts is working fine for corporations but lousy for workers. The study found that these plans don’t work, because they rely upon workers making judgments that are contrary to human nature.

In August of this year, the Employee Benefit Research Institute (EBRI), the country’s foremost research organization on retirement and health benefit issues, released an extensive report on why workers are failing to avail themselves of 401(k) accounts and health savings accounts when they are offered by employers.

While 401(k) retirement savings accounts have been in vogue for the last 20 years, it is only in the last five years that 401(k)-style health plans have been developed. These health plans called health savings accounts, or HSAs, work like 401(k) plans in many ways. They permit employers to shift the cost of health care benefits to employees, by requiring that employees establish separate accounts into which they can contribute --- with or without an employer matching contribution --- a portion of their pay.

As with 401(k)s, the contributions to health savings accounts, and the earnings on the contributions, are tax free. Money in the accounts can build up year after year, but can only be spent for qualified medical expenses. The maximum annual contribution is $2,900 per individual or $5,800 per family.

In order to establish and contribute to such an account, the employee must also purchase, or be a participant in, a health insurance plan with a high annual deductible of at least $1,100 per year for an individual and $2,200 per family.

The theory of HSAs is that if you require workers to pay a high deductible, and offer them the ability to set aside tax-free savings to pay the deductibles, they will be more likely to avoid incurring unnecessary medical expenses, and save money tax free for only essential medical services.

The problem with this theory, as pointed out in the EBRI report, is that it depends upon each individual to make informed and rational decisions about very complicated matters --- something that human nature seeks to avoid. In this regard, HSA account holders are in exactly the same boat as 401(k) account holders. HSA participants must choose whether to save now or later for medical events that may not occur for many years in the future. 401(k) participants have the same choice about retirement savings.

In order to maximize the value of their accounts, HSA participants must become educated consumers of complex medical services. Similarly, 401(k) participants must become educated consumers of complex investment services. But, as pointed out in the EBRI study, the choices required to optimize 401(k)s and HSAs run contrary to human nature and require a level of both knowledge and discipline possessed by few.

The study cites prior research showing that people have a general tendency to be overly optimistic and confident. These tendencies are manifested in retirement planning behaviors of 401(k) participants investing in hot-performing investment funds and by their misplaced confidence in their own retirement security, despite modest savings and little or no preparation.

Likewise, in the health care area, the continuous news of new medical discoveries and technologies offer new hope and possibilities. However, such hope combined with the tremendous risk and uncertainty of medical decisions can easily lead to excessive optimism and overconfidence leading workers to either choose expensive care that has little probability of success, or choosing to put off saving for future medical expenses because of overconfidence in their own future needs.

Health savings accounts, like 401(k) retirement accounts, are being sold as products that empower workers to make their own retirement and health care decisions. In reality they empower employers to increase profits and leave workers holding the bag.