HRA vs HSA
You’re searching for HRA vs. HSA because another enrollment period is coming up, and you want to make the right choices for yourself and your family. Health insurance and health savings options can be challenging to navigate. They all have unique features that make them better for certain people over others, but it’s hard to tell the differences between them without much research. Also, making the wrong decision when choosing your coverage could cost you more than just money. Plus, if you’re not happy with how things are going on your plan, there isn’t much room for change at this point until open enrollment starts again next year. So, if you’ve made mistakes before or are new to the process, take time now to learn more and prevent future errors.
An HRA is an employer-funded account that reimburses employees for qualified medical expenses. It’s similar to the flexible spending account you may have heard about, but it has a few key differences. The IRS treats HRAs as payment from the employer and not as a reimbursement.
If an employee leaves the company with unused funds in this account, they lose it. Additionally, if they don’t use it all, the IRS requires employers to roll over any remaining reimbursement funds to the next year for individual HRAs.
An HSA, or health savings account, is only available for individuals and families with a high deductible health plan (HDHP). It allows people to offset some of their healthcare costs with the pre-tax savings account. The funds can be used to pay for qualified medical expenses. You can have an HRA and HSA at the same time.
Keep reading to learn more about the HRA vs. HSA.
HRAs are not a type of insurance. It’s simply the name given to this kind of employer-funded benefit program. An HRA is a kind of flexible spending account that pays you back for certain medical expenses. Depending on what type of account your employer offers, it can reimburse you for the cost of purchasing a marketplace or private insurance plan. Also, it might cover premiums for dental or vision coverage.
A health savings account or HSA is for people with a high deductible healthcare plan that lets them deposit money before taxes into an HSA-designated account. These aren’t regular spending accounts in a bank. They have special designations that let the IRS know it’s a healthcare-related account.
Additionally, the limitations on HSAs require strict accounting of each one. These details are reported to the IRS. The funds are deposited through payroll deductions. Once the funds are in your account, you can use them to pay for specific medical expenses, including copayments and prescriptions. These accounts differ from flexible spending accounts that allow for pre-tax savings for an assortment of costs, including child care and summer camp if the employer’s plan consents to it.
An HRA is beneficial for the employer that doesn’t want to manage complex health insurance laws. On the other hand, employees aren’t stuck with one or two options for healthcare coverage and they get reimbursed for some of what they spend out of pocket. However, an HRA isn’t a typical account like an HSA. There’s no place for you to withdraw money from. Instead, you supply the proof of payment and your employer has a certain amount of time to reimburse you the money. On a more positive note, neither party will pay taxes on the money.
Health savings accounts are a great way to save money on future medical expenses. As the name suggests, HDHPs have high deductibles, so you need to pay out-of-pocket for much of your health care costs at the start. But this can be an excellent tool that allows you to put pre-tax dollars towards these deductible and other healthcare needs like prescriptions or doctor visits down the line without paying taxes on the income! You don’t have to open an HSA if you’re enrolled in an HDHP. Additionally, if there’s still money left over at the end of the year, it rolls tax free into the next tax year, so you don’t lose the money you save.
Deciding which is better or comparing the HRA vs. HSA isn’t necessarily. You can have one, both, or none. For example, if your employer offers the HRA instead of group health insurance and you go to the marketplace and pick a high-deductible health plan, you’re also eligible for an HSA. However, if you choose more coverage and pay a lower deductible, the HSA isn’t an option. Nonetheless, if your employer has an FSA, you can still save pre-tax dollars for medical expenses. Also, if your employer offers no coverage and you go to the marketplace, you’re only eligible for an HSA.
Both the HSA and HRA have rules. However, an HSA has a longer list of regulations than the HSA. Health savings accounts have limits set by the IRS. For example, in 2021, an individual could save up to $3,600 and a family could have up to $7,200. You can have multiple HSA accounts. But you can’t surpass the maximum amount set by the IRS. For example, two spouses have an HSA account they can split the 7,200, but they can’t exceed it. Additionally, if you’re 55 or older, you can save a little more each year. The IRS allows people 55 and over to save an extra $1,000 each year. Another rule change for the HSA is over-the-counter medications. In 2020, as part of the CARES Act, congress changed the regulations to allow these expenses.
Both the HRA and HSA have similar allowable expenses. However, the health reimbursement arrangement often has more rules set by the employer. For example, both don’t allow the cost of annual medical contract fees for exclusive provider care (concierge medicine) and plastic surgery, such as breast augmentation, unless it’s related to breast cancer and women who’ve undergone a partial or total mastectomy.
Also, the HSA isn’t like an FSA. It’s not flexible and won’t cover child care expenses, summer camp, or after-school care. Other examples include COBRA premiums, which aren’t eligible with an FSA but are for the HSA. This situation has the potential to save you money on taxable income.
Washington companies with two or more enrolled employees are eligible to participate in the Business Health Trust benefit program. Participation requires membership with the Seattle Metropolitan Chamber of Commerce or one of our partner organizations: Bellingham Regional Chamber of Commerce, Economic Alliance Snohomish County, Tacoma-Pierce County Chamber of Commerce, Thurston County Chamber of Commerce, Greater Yakima Chamber of Commerce and Archbright. Your membership in any of the above organizations automatically qualifies you for one of our 13 industry group memberships (at no additional cost), and all the advocacy, resources and savings that go along with it.