The Key Differences between HSA and HRA
Health savings accounts (HSAs) and health reimbursement arrangements (HRAs) are both popular healthcare savings options for employees. However, not many people understand the differences between the two. This article will compare and contrast HSAs and HRAs to help you determine which option is best for you.
What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged savings account that is intended to help individuals accumulate funds to cover medical expenses. They are available to those who are enrolled in a high-deductible health plan (HDHP), which is a healthcare plan that requires high deductibles before coverage kicks in.
HSAs allow individuals to contribute pre-tax dollars into their savings accounts, which can then be used to pay for qualified medical expenses. Additionally, any unused funds at the end of the year roll over into the next year’s account.
What is an HRA?
A Health Reimbursement Arrangement (HRA) is a tax-advantaged health benefit funded solely by the employer. Similar to an HSA, an HRA is designed to help employees cover their medical expenses, but there are a few big differences.
With an HRA, the employer funds the account, and employees are reimbursed for their medical expenses. Unlike an HSA, the funds in an HRA do not roll over when the plan year ends. Any unused funds are forfeited, which means your HRA balance starts from zero each year.
Comparing HSAs to HRAs
While both HSAs and HRAs have tax advantages, there are some key differences to keep in mind. One significant difference is how the accounts are funded. In HSA, both employees and employers can make contributions, but in HRA only Employers fund the account. HSAs also have a higher contribution limit when compared to HRAs.
Another key difference is that HSAs can be owned and managed by employees, which means you can keep your HSA account and use it even if you switch employers. In contrast, HRAs are owned by the employer and are usually forfeited when employees leave their jobs.
Finally, the funds in an HSA can be invested, giving employees the opportunity to grow their savings over time. In contrast, HRAs are usually used up for regular medical expenses and not for investment purposes.
Conclusion
Both HSAs and HRAs have benefits and drawbacks, depending on your personal needs and financial goals. If you are looking for portability and investment options, then the HSA is a better option for you, but if you prefer employer-funded accounts and have consistent medical expenses, then the HRA may be a better choice. It is essential to consult with your employer and financial advisor to determine which option best suits your individual needs.
Table difference between hsa and hra
| Feature | HSA (Health Savings Account) | HRA (Health Reimbursement Account) |
|---|---|---|
| Who funds the account? | The employee/individual | The employer |
| Ownership of the account | Owned by the employee/individual | Owned by the employer |
| Account rollover | Account balance can rollover from year to year | Unused funds typically are forfeited at the end of the year |
| Withdrawal restrictions | Withdrawals for non-qualified expenses are subject to income tax and a 20% penalty | Withdrawals for non-qualified expenses are subject to income tax only |
| Account eligibility | Must have high-deductible health plan (HDHP) to be eligible | Available to all employees, regardless of their health plan choice |