What Is an HRA, HSA and FSA?
Health reimbursement arrangements, health savings accounts and flexible spending accounts are all tax-advantage accounts that help you save on healthcare. These are the basic similarities and differences between them.
Please note: HRAs and FSAs are only available through an employer. HSAs are available to people who purchase health coverage through an employer OR on their own through an Exchange/Marketplace or directly from a health insurance company like CareFirst.
HRA Health Reimbursement
Arrangement
- Owned by your employer
- You can't contribute to it
- Funds do not roll over and stay with the employer if you leave the company
HSA Health Savings Account
- You own it
- Both you and your employer can contribute to it
- Unused funds roll over year to year
- You can invest funds like a retirement account to grow it
FSA Flexible Spending Account
- You own it
- You can contribute to it, but employer contributions depend on your individual plan
- Funds left over at the end of the year will expire
Learn More About Each Account
A health reimbursement arrangement (HRA) is an account your employer owns and deposits a predetermined amount into each year for qualified healthcare expenses, such as copays, flat doctor or specialist fees and medical supplies. The money your employer contributes to your HRA is not taxed as a part of your income.
It's important to note that only your employer can put money into the HRA; you can't contribute. Leftover funds you haven't used by the end of the year or when you leave the company are returned to the employer.
Is an HRA right for you? It might be if:
- You don’t qualify for an HSA, or a high deductible plan (HDHP) doesn’t fit your needs.
- You need some help with medical costs that your insurance may not cover.
An HSA is an account you own. You or your employer can deposit money into it for future healthcare expenses. Money saved in an HSA is not treated as taxable income.
You can use these funds to pay for doctor visits, medical supplies and other out-of-pocket expenses, like vision and dental care. The IRS determines which medical expenses can be paid out of an HSA, so be sure to save all your receipts.
You can only qualify for an HSA if enrolled in a high deductible health plan (HDHP).
Compared to traditional health plans, HDHPs require you to pay more out-of-pocket expenses before insurance benefits kick in. However, you usually have a lower monthly payment. Plus, you can use your HSA to help pay for those expenses and offset the higher deductible cost.
Because your employer may contribute to your HSA, they also help to offset the higher out-of-pocket costs your insurance doesn't cover. You can also grow your HSA funds by investing in stocks, mutual funds and other investments. Your HSA earns interest, and as it grows, you will never pay taxes on any increase in value.
There is no "use it or lose it" rule, either. Because you own the account, the funds are there whenever you need them. The money you contribute to your HSA will roll over forever.
Is an HSA right for you? It might be if:
- You have predictable or high healthcare expenses, and setting aside money that will not be taxed as income can help pay these expenses.
- You want to save money now for health expenses when you're older, tax-free.
- Your employer contributes to your HSA, adding to the funds you can use on qualifying healthcare expenses.
Unlike an HSA, you don't need a specific healthcare plan to be eligible for a flexible spending account (FSA). But like an HSA, you can contribute money to an FSA without paying any taxes. Use FSA funds to pay for doctor visits, out-of-pocket costs, medical devices and prescription medications. Unused funds do not roll over at the end of the year—you will lose any unspent contributions.
Is an FSA right for you? It might be if:
- You don’t qualify for an HSA.
- You have ongoing medical needs with predictable costs (so you know what to contribute).
- You have regular over-the-counter medication expenses.