If you feel that the world of health savings can be a bit confusing, you’re not alone. At MidAmerica, we oftentimes are asked to help clients decipher the differences between account acronyms, which can certainly be confusing to the untrained eye. Two commonly confused benefits are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). But how do these accounts differ? What about them is similar? Continue reading for further insight.
Health Savings Account (HSA)
An HSA is a personal bank account to help employees save and pay for qualified medical expenses. In order to contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP) that meets a deductible amount set by the Internal Revenue Service (IRS). The HSA is a voluntary benefit of which employees can choose to participate (or not to participate). HSAs can be funded by the employee, the employer or any combination of the two. While HSAs help offset the cost of an HDHP, they come with maximum contribution limits and restrictions on eligible reimbursements.
Health Reimbursement Arrangement (HRA)
Unlike an HSA, an HRA does not require enrollment in an HDHP and is overall a bit more flexible with its administration. If the employer offers an HRA, enrollment is automatic and requires no action from the employee. Employers are the only allowed contributor for HRAs and can determine the amount and frequency of the contribution. HRAs have no maximum contribution limits and can allow for reimbursement of health insurance premiums upon retirement.
HSAs and HRAs: A Comparison
HSAs and HRAs have a lot in common, but also have key differences that should be highlighted. The comparison chart below illustrates the most notable similarities and differences between the two benefits.
|Taxes||100% tax-free contributions, reimbursements and interest accrual.||100% tax-free contributions, reimbursements and interest accrual.|
|Eligible Expenses||HRAs cover medical expenses that are determined by the IRS & the employer. The employer may decide to only allow the HRA to pay for services covered by your health plan. Some HRAs can be used to pay for dental, vision, & other services/supplies listed under Section 213(d) of the Internal Revenue Code.||HSAs cover qualified medical expenses, including services covered by a health plan as well as expenses listed under Section 213(d) of the Internal Revenue Code.|
|Contributions||Employer can contribute (Participant can still contribute to a full medical FSA).||Participant and Employer can contribute (Participant can only use FSA for dental and vision expenses).|
|Participation Eligibility||All participants and retirees can participate.||Some participants are not eligible to participate.|
|Integration with FSA||The HRA allows the employee to have a health care FSA and/or dependent care FSA.||HSAs permit the employee to have a limited purpose FSA which can only be used for eligible dental and vision services.|
|Carryover||100% of funds can roll over each year or the employer can designate a certain rollover amount and share in a portion of the unused funds.||Funds can roll over each year. The employer cannot share in a portion of unused funds.|
|Investments||HRAs can be invested for potential growth.||HSAs can be invested for potential growth.|
|Design Flexibility||Can be used with any type of health insurance plan design.
|Can only be used with an IRS-qualified High-Deductible Health Plan (HDHP) whose limits are set by the IRS.|
Gaining clarity with key terms is very important when planning your benefits. If you ever struggle with understanding the difference or similarities between different plan types, MidAmerica is always here to help. To learn more about HRAs and HSAs, you can download our comparison chart by completing the form below.