What is an HSA account?
An HSA (Health Savings Account) is a type of savings account that you have access to if you have an HSA-compatible health insurance plan, like a high deductible health plan (HDHP). If you’re a Bank of America employee, this means you will have to be enrolled in the Consumer Directed High Deductible Plan to be eligible for an HSA. With your HSA you can save and invest money that you contribute, and then spend it tax-free on qualified medical expenses.
HSA’s are fairly similar to that of an HRA or FSA, however, the main difference is that the money within your HSA is yours. This means that when you leave the company or retire, you get to keep all the money in your HSA. This isn’t the case with FSAs or HRAs – all unused money is forfeited when leaving the company with these options.
The Pros and Cons of Having an HSA Account
Although having an HSA sounds pretty great, there are some benefits and drawbacks that come with the associated health insurance plan. Unfortunately, a high deductible health plan will not be right for everyone.
To ensure you make an informed decision on your health insurance plan, we’ve highlighted some of the most prominent benefits and drawbacks of an HSA/HDHP below:
- HSA contributions are tax-deductible, meaning they will reduce your tax burden when tax season comes around.
- Funds in your HSA can be invested, once you reach the investment threshold of $1,000
- Any capital gains or accrued interest is tax-free, so long as your funds are used for qualified medical expenses
- HDHP plans have lower monthly costs when compared to their counterparts.
- High Deductible Health Plans can end up being more expensive than other insurance options for those who use their insurance often
- You need to make regular contributions to your HSA to get the most benefit out of it, which many people don’t do.
- High Deductible Health Plans come with increased financial risk to the insured
What is a Health Reimbursement Account (HRA)?
When choosing between the Consumer Directed Plan, Comprehensive PPO, and the Consumer Directed High Deductible Plan at Bank of America, it’s important to know about the Health Reimbursement Account (HRA) that comes along with the CDP. This is because it functions similarly to that of an HSA, but doesn’t require you to be enrolled in an HDHP.
Employees cannot make contributions to their HRA, however, Bank of America will make a contribution at the beginning of every year.
Contribution amounts are based on Performance Year Cash Compensation (PYCC) as shown below:
|Individuals Covered||Contribution Amount|
|Employee Only||<$50K PYCC – $500 $50K-$100K PYCC – $400 $100K-$250K PYCC – $300|
|Employee Plus Spouse/Partner OR Plus Child(ren)||<$50K PYCC – $750 $50K-$100K PYCC – $600 $100K-$250K PYCC – $450|
|Family||<$50K PYCC – $1,000 $50K-$100K PYCC – $800 $100K-$250K PYCC – $600|
Like an HSA, unused funds will roll over to the next year. However, one of the main differentiating factors is that keeping your unused funds upon leaving the company is not guaranteed. Only those whose number of vesting years plus their age is greater than or equal to 60 (provided they have more than 10 years of vesting service) may keep their unused funds.
Choosing Between a Low or High Deductible Health Plan
Choosing the right health insurance plan without paying for too much coverage can be daunting. Bank of America offers three medical plans as follows: the Comprehensive PPO, the Consumer Directed Plan, and the Consumer Directed High Deductible Plan.
For 2022, the Bank of America health plans have the following deductibles:
|Insurance Plan||In-Network Deductible||Out-of-Network Deductible|
|Comprehensive PPO||Individual – $500 Family – $1,000||Individual – $1,000 Family – $2,000|
|Consumer Directed Plan||Individual – $1,200 Family – $2,400||Individual – $2,400 Family – $4,800|
|Consumer Directed High Deductible Plan||Individual – $2,250 Family – $4,500||Individual – $4,500 Family – $9,000|
The HDHP has lower premiums, so it seems like a better option at first. However, HDHPs come with added financial risk since the deductibles they come with are very high. This means you may be better off going with an LDHP if you tend to see the doctor often.
Another factor that you should consider when choosing your health insurance plan is the out-of-pocket maximum. This is the maximum amount of money you will have to pay per year for health coverage.
Below are the out-of-pocket maximums for each of the Bank of America medical plans:
|Insurance Plan||Out Of Pocket Maximum (In Network)||Out Of Pocket Maximum (Out of Network)|
|Comprehensive PPO||Individual – $2,000 Family – $4,000||Individual – $4,000 Family – $8,000|
|Consumer Directed Plan||Individual – $3,500 Family – $7,000||Individual – $7,000 Family – $14,000|
|Consumer Directed High Deductible Plan||Employee – $4,000 Individual – $7,350 Family – $8,000||Individual – $8,000 Family – $16,000|
Generally speaking, the more you expect to spend on medical expenses each year, the less advantageous an HDHP and its associated HSA become.
For example, an HDHP plan might make sense if:
- You’re young and healthy
- You don’t expect to use your insurance often (i.e. you only need routine care, generic prescription drugs, or preventive care).
- You want to open a Health Savings Account so that your money can grow tax-free into retirement.
- You can’t afford the premiums on the LDHP options
On the other hand, an LDHP might be better if:
- You’re older or are in poor health.
- You expect to use your insurance often
- You want to limit your risk to high medical bills, should something unexpected happen
- You can afford paying the higher upfront premiums
If you’d like a more customized comparison of the plans, we’ve created a spreadsheet for you to download and enter your anticipated medical costs so that you can see an estimate of your total costs (medical premiums plus out-of-pocket costs).
What Are Qualified Medical Expenses?
Since it’s important to know whether or not what you’re paying for is a qualified medical expense, the IRS has put together Internal Revenue Code Section 213(d). This section of the tax code defines what exactly “qualified medical expenses” are. However, the tax code can be very dry and lengthy, so we’ve summarized what a qualified expense is below:
Qualified Medical Expense – expenses that must be made for medical care, such as the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.
Some things that are often charged to HSA’s are:
- Ambulance services
- Artificial limb or prosthesis
- Dental treatment
- Contact lenses
- Doctor’s fees
- Hearing aids and hearing aid batteries
- Hospital services
- Laboratory fees
- Prescription medicines or drugs
- Nursing home
- Nursing services
How Do I Make Contributions To My HSA?
There are three ways to contribute to your Bank of America HSA:
- Payroll deductions: You can have a set amount deposited (pre-tax) to your HSA from every paycheck.
- Online deposits: You can make a one-time or recurring contribution to your HSA from a checking or savings account.
- Mail: You can mail a check with a contribution/deposit form.
You can contribute as often or as much as you wish, as long as the total contributions do not exceed the limits specified by the Internal Revenue Service. However, payroll deductions are often seen as the best way to contribute to an HSA.
Is There a Limit To How Much I Can Contribute?
The maximum amount the IRS allows you to contribute to your HSA in 2022 is $3,650 for an individual and $7,300 for family coverage, plus catch-up contributions of $1,000 for those 55 and older. HSA contribution limits will increase to $3,850 for individuals and $7,750 for a family in 2023. The catch-up contribution will stay at $1,000 for those 55 and older.
Can I Invest My HSA Funds?
Bank of America insurance plans allow you to invest your HSA funds, once you reach their investment threshold. The investment for Bank of America’s Consumer Directed High Deductible Plan is $1,000. This means you can invest every dollar in your HSA over the $1,000 threshold.
Sample HSA Growth (Assuming 4% Annual Return)
The ability to invest your HSA funds can really supercharge your savings for medical expenses. In order to illustrate how powerful this ability is, we’ve put together an example below that shows how much money you can accrue in an HSA using a token 4% return.
|Jim and Sue (Age 35)||Kathy & Ken (age 55)|
|Year of retirement||2052||2032|
|Annual HSA contribution||$6,150||$7,150|
|Annual out-of-pocket medical expenses||$1,000||$0|
|HSA contributions saved to use in retirement||$154,500||$71,500|
|HSA investment income until retirement||$134,337||$14,344|
|Total HSA tax savings at retirement||$79,709||$21,461|
|Total HSA balance in retirement||$288,837||$85,844|
Are There Any Tax Benefits To Choosing The HSA Option?
Since contributions to your HSA are tax-deductible, this means your taxable income will be reduced when you make a contribution.
The chart below illustrates how much money you can save in taxes, just by contributing to an HSA:
|25% federal income tax||-$1,825||$0|
|Funds left to pay for qualified medical expenses||$5,475||$7,300|
Given the fact that you can contribute up to $7,300 to an HSA in 2022 and $7,750 in 2023, there are some serious potential tax savings if you contribute on annual basis until retirement. So long as you’re maximizing your HSA contributions, the tax savings alone can pay for a large chunk of your contributions.
Can I Use My HSA Funds For Non-Qualified Expenses?
Yes, but you’ll be required to pay income tax and a 20% tax penalty on the amount you use for nonqualified expenses. This 20% penalty is waived on distributions made after your death or disability, or after you’ve reached age 65.
Does Bank of America Contribute Money To The HSA Or HRA Accounts?
Bank of America does contribute money to employee HSA’s and HRA’s. The amount of money contributed each year is based on Performance Year Cash Compensation. Bank of America contributes the same amount of money to employee HSA’s and HRA’s every year, as illustrated in the table under the “What is a Health Reimbursement Account (HRA)?” section.
It’s important to note that employer HSA contributions do count toward the IRS maximum. So be careful when making your own contributions – you don’t want to contribute more than the maximum.
What Happens To My HSA If I Leave My Employer?
Since your HSA funds are yours, you can continue to use them tax-free to pay or be reimbursed for qualified medical expenses even if you switch jobs, retire, or are no longer covered by an HDHP. However, you will no longer be eligible to add additional funds to your HSA.
Does Bank of America Offer HSA Accounts?
To conclude, in this blog we answered the question: “Does Bank of America offer HSA accounts?”. They absolutely offer them! Besides HSA accounts, If you are curious to learn more about wealth management, visit Calamita Wealth Management to access more informational blogs or contact us today to speak to one of our advisors.