HDHP + HSA: First aid for rising health care costs

Affording health care is one of the top financial challenges affecting both businesses and employees. Statistics on rising health care costs are causing both employers and employees to wonder: Are we prepared?

55% increase in family health insurance premiums over the past 10 years.1

$270,000 is the amount a 65‑year‑old couple will need in retirement to cover out‑of‑pocket health care costs.2

5.4% projected average annual growth rate in national health spending.3

Many companies are finding that pairing a high-deductible health plan (HDHP) with a Health Savings Account (HSA) can help them be more proactive about managing health care expenses. The lower premiums typically associated with an HDHP can mean lower health benefit costs for employers while providing employees the opportunity to contribute to a tax-friendly and easy-to-use tool to help them save and pay for eligible health care expenses. The savings employees experience with lower premiums can be directed into their HSAs and put toward out-of-pocket expenses like deductibles, copayments, prescriptions and more. Any unused dollars will roll over each year for future health care expenses.

Cost savings for employers

  • Employers generally save on health benefit expenses when they switch to an HDHP from a traditional health plan.
  • There are no payroll taxes on employer contributions to their employees’ HSAs. This equals a 7.65% savings: 1.45% (Medicare) + 6.2% (Social Security).
  • Employers can take a federal income tax deduction for contributions they make to employees’ HSAs.

Benefits for employees

  • Potential triple tax advantages:4
    1. Tax-free contributions
    2. Tax-free interest and potential investment gains
    3. Tax-free withdrawals for qualified medical expenses now and in retirement
  • Flexibility: No “use it or lose it” policy—funds roll over each year.5
  • Portability: Accounts are owned by employees, even if they change jobs or retire.
  • Investment ability: Account balances can be invested, so accounts have the potential to grow—tax‑free.
  • Long-term savings vehicle: HSAs can cover the cost of eligible health care expenses in retirement—tax‑free.

What to consider when establishing an HSA

When considering an HSA, look for a provider that offers flexibility and ease when managing accounts. Employers can choose to use their health plan provider’s default HSA or select a separate provider, which may offer additional capabilities. In addition, companies that opt for a separate HSA provider have the option to change health plans without disrupting their HSA services. Other features to look for include:

  • Ease of administration with online employee enrollment and account funding.
  • Data analytics and reporting to help assess employee needs and identify opportunities to improve outcomes.
  • Employee education to help employees understand how HSAs work and ways to make the most of their accounts.
  • Mobile access and tools that allow account holders to conveniently track and manage their accounts wherever and whenever they want, upload receipts or quickly scan bar codes to validate eligibility of their medical expenses.
  • Online and one-on-one customer support.
  • Benefits integration plus comprehensive financial wellness education and guidance to help employees manage their broad financial lives in one place.
  • Integrated, no-cost investment option to help employees make the most of their HSA savings and potential growth.

Key takeaway

Talk with your Bank of America representative about how an HSA from Bank of America can fit with your total benefits offerings.

1 Source: Kaiser Family Foundation 2020 Employer Health Benefits Survey, October 2020.

2 Employee Benefits Research Institute, Issue Brief 506, May 28, 2020.

3 Source: Center for Medicare and Medicaid Services, National Health Expenditure Fact Sheet, 12/16/20.

4 About potential triple tax advantages: You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Any interest or earnings on the assets in the account are tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.

5 “Use it or lose it” refers to account portability and annual rollover of accumulated assets; it does not imply you cannot lose money. The investment portion of the HSA account is not FDIC insured, not bank guaranteed and may lose value.

Mutual Fund investment offerings for the Bank of America HSA are provided by MLPF&S, a registered broker-dealer, Member SIPC and a wholly owned subsidiary of BofA Corp. Investments in mutual funds are held in an omnibus account at MLPF&S in the name of Bank of America, N.A. (“BANA”), for the benefit of all HSA account owners. Recommendations as to HSA investment menu options are provided to BANA by the Chief Investment Office (“CIO”), Global Wealth & Investment Management (“GWIM”), a division of BofA Corp. The CIO, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (“ISG”) of GWIM.