What is an HRA, HSA, and FSA?
Health savings accounts, health reimbursement arrangements, and flexible spending accounts are all tax-advantaged accounts that help you save on health care. These are the differences between an HRA, HSA, and FSA.
What is an HRA?
A health reimbursement arrangement (HRA) is an account that your employer owns and deposits a predetermined amount into each year for qualified health care expenses, such as copays, flat doctor or specialist fees and medical supplies. Depending on your plan, you may be able to use HRA funds to pay your monthly health insurance premium or deductible (the amount you pay out of pocket before your insurance begins to pay). 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.
What is an HSA?
A health savings account (HSA) is an account that you own. Either you or your employer can deposit money into it for future health care expenses. As with an HRA, 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. You should be aware that you cannot pay your health insurance premiums with an HSA. The IRS determines which medical expenses can be paid out of an HSA, so be sure to save all of your receipts!
You may qualify for an HSA if you’re enrolled in an IRS-determined high-deductible health plan (HDHP) – a plan that requires you to pay more out-of-pocket expenses before insurance benefits kick in. You can use your HSA to help pay out-of-pocket expense and offset the cost of the higher deductible.
Because your employer contributes to your HSA, they also help 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’s no “use it or lose it” rule, either. Because you own the account, the funds are there for you whenever you need them.
If you have high medical expenses, an HSA is a smart investment in your health care. You’re able to deposit, invest and grow and withdraw money tax-free for eligible medical expenses. For those facing multiple surgeries, needing specialty medications or managing a chronic illness, these funds can make a huge difference in managing expenses.
What is an FSA?
A flexible spending account (FSA) is a place you can save money for future health care expenses, like dental and vision care. Like the HSA you cannot use FSA funds toward your monthly health insurance premium. You (and in some cases, your employer) 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.
Unlike with an HSA, you don't need to have a specific health care plan to be eligible for an FSA. However, unused funds do not roll over at the end of the year – you will lose any unspent contributions.
An FSA can work well for those with ongoing, continuous medical needs that have predictable costs (so you know what to contribute) and those that don’t qualify for an HSA.
HRA, HSA and FSA: Key similarities and differences
- Owned by your employer
- You can’t contribute to it
- Funds do not roll over and HRA funds stay with the employer if you leave the company
Depending on your plan, an HRA may help you make your monthly premium payments with tax savings.
- 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
- You can’t use it for monthly premium payments
- You own it
- Funds left over at the end of the year will expire
- You can contribute to it anytime, but employer contributions depend on your individual plan
- You can’t use funds for monthly premium payments