Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs) are three different types of employer-sponsored benefit accounts that benefit employees in different ways. These accounts feature many similar benefits including healthcare assistance, tax advantages, and more, but their differences can be quite tricky to understand.
Because each of these accounts is designed to assist employees with the same kinds of issues, it’s no surprise that they have a lot of overlapping qualities. To better understand the unique advantages of each, let’s take a close look at the little areas where those differences lie.
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HRAs, or Health Reimbursement Arrangements, are health savings accounts that constitute an arrangement between employers and employees. They come in many different forms including Qualified Small Employer HRAs (QSEHRA), Individual Coverage HRAs (ICHRA), and Group Coverage HRAs (GCHRA). While these accounts have many varied advantages, they do tend to be more inflexible than HSA and FSA account types.
HSAs, or Health Savings Accounts, are a kind of savings account that help individuals save pre-tax money to cover any healthcare expenses they may have that aren’t covered by the various insurance programs they fall under. These account types have many benefits that others may not feature including rollovers, certain tax benefits, and an assortment of investment opportunities.
FSAs, also known as Flexible Spending Accounts, provide employees with a way to pay for their medical expenses with tax-free money that can be carried across terms and years to better benefit the employee. Like HRAs, FSAs feature many different account types under their system to better help individuals where they need it most. These account types include Health Flexible Spending Accounts (HFSA), Dependent Care Assistance Accounts (DCAA), and Individual Premium Reimbursement Accounts (IPRA).
Differences Between HRA, HSA & FSA
While HSAs, FSAs, and HRAs feature many similar benefits, they also have a host of differences that can help you determine which is the best choice for you. Here’s what you need to know:
With HRAs and FSAs, the accounts are technically owned by an account holder’s employer. HSAs differ from both of these because they are owned solely by individual employees. This sometimes makes HSAs a bit more appealing to the general public, because it gives them more freedom when it comes to managing their accounts and healthcare needs.
Contributors are those who are allowed to add (contribute) money to a savings account. With HRAs, employees are not permitted to make any deposits or contributions to the account at all, which can seriously reduce the amount of savings employees are able to accrue.
FSAs and HSAs, on the other hand, allow and encourage both employers and employees to deposit money into the accounts, giving both groups a bit more flexibility.
Some accounts, like the HRA, don’t feature any contribution limits and allow people to input as much money as they want into the account. Others, like HSAs and FSAs, are stricter.
For 2021, individuals with HSAs were only allowed to contribute $3,600, with families maxing out at $7,200 with a $1,000 catch-up. Those with FSAs were limited to $2,750 for the 2021 plan year per person, but employers were allowed to choose a lower limit if they so desired.
Typically, each of these account types will cover medical, dental, vision, prescription, and over-the-counter expenses that employees may have, but HSAs and HRAs feature a few additions that FSAs do not.
With HRAs, there may be post-tax insurance premiums that are also eligible for coverage—and HSAs will cover COBRA, retiree medical insurance premiums, and LTC premiums or expenses.
Requirements for Qualification
Typically, with any insurance or healthcare expense coverage plan, there may be extra conditions that must be met before individuals may qualify for coverage. The same is true for HSAs and HRAs.
Of the two, HSAs have more strict requirements as participants must be covered by qualified HDHP and not protected by other plans that cover medical expenses under the deductible. With the deductible, the HDHP minimum for 2021 is $1,400 for singles and $2,800 for families, and the maximum for out-of-pocket contributions as of the same year is $7,000 for singles and $14,000 for families.
With HRAs, individuals are typically required to be part of the company’s group medical plan, meeting all of the basic requirements for that before they can qualify for the HRA.
FSAs have no accompanying plan requirements.
Rollovers are allowed with all of these account types, but often whether they are offered is left to the employer’s discretion. HSAs are required to have full rollovers, but HRAs and FSAs leave that option open to employers with FSAs being limited to a $550 rollover.
Whether or not a savings account or agreement is portable can determine whether you can use the money you’ve saved in those accounts with one employer if you leave their company. If the money is able to be moved, it’s considered to be portable.
HSA accounts are portable, so individuals don’t lose the money they’ve saved if they choose to move on from their current employer. With HRAs, individuals may be eligible for portability, but the decision is at the employer’s discretion. FSAs do not offer any portability at all.
HSAs and HRAs allow all deposits to be credited to the individual accounts, but they may be credited in a single lump sum for HRAs. FSAs differ from both of these a bit because they allow full annual elections to be available on the first day of coverage.
Each of these accounts has much to offer in the way of helping you save tax-advantaged money. Some accounts, like HSAs, are incredibly flexible and give employees a lot of room to determine how they want to operate their accounts. Others, like HRAs, are much more rigid with their requirements and can be harder to work with, depending on what is needed from them.
Carefully consider each of the differences between these different programs so that you are able to select the best one for yourself and your company.
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