HRA or HSA? It seems like a simple enough question. But, Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs) prove to be a little mind boggling for people. Many people overlook the key benefits, or confuse HRAs and HSAs with FSAs.
For the most part, people tend to understand Medical FSAs. With a Medical FSA, you make an election. Then, on the first day of the plan year, you can access the election and use it on eligible medical expenses. If you don’t spend your FSA funds by the end of the designated time period, you are at risk to lose some or all of the unspent funds.
So, where does that leave us with HRAs and HSAs? Rather than guess, we would like to challenge your understanding with a little game called: “HRA or HSA?”
In this game of “HRA or HSA?”, we will pose a question or statement. You will then have to decide if it is describing an HRA, HSA or both. To see the correct response (and maybe learn a thing or two), be sure to expand the view for each item.
Let’s get started.
ROUND ONE: Which account(s) is funded by the employer? HRA or HSA?
Definitely an HRA. Sometimes an HSA. (Both).
An HRA is always funded by an employer (and only the employer). According to the 2018 Bright Ideas quiz just one in two respondents understand that an HRA is solely funded by the employer.
Some employers help to fund an HSA, but usually only up to a certain dollar amount. This is known as “seeding”. The employee is the main contributor to funds in the account.
ROUND TWO: Contributions can be made until the tax-filing deadline (typically April 15) for the prior year. HRA or HSA?
HSA contributions can be made until the tax-filing deadline for the prior year. Any contributions made outside the employer’s cafeteria plan are deductible by the account holder when filing their taxes.
ROUND THREE: Employers set many of the rules regarding this account’s use and funding. HRA or HSA?
HRAs provide flexibility for employers, allowing them to set many of the rules regarding its use and funding. As employers look to set-up an HRA, the first step is to set a goal (and a budget). Be sure to understand what the HRA is intended to accomplish. This ensures that your HRA plan design properly aligns with the goal. Check out our Best Practices Guide to HRAs for additional tips and ideas for HSA Plan Design.
ROUND FOUR: Which account is owned by the account holder, rolls from year-to-year, earns interest and can be invested? HRA or HSA?
An HSA, of course!
An HSA is the only pre-tax account that is owned by the account holder. In fact, the funds contributed to an HSA belong to the employee, even if they change employers or health plans. As an added benefit, the HSA earns interest and can be invested.
HRAs, on the other hand, are owned by the employer. While HRAs may provide post-retirement benefits or post-employment benefits, these benefits are not a key feature and are at the discretion of the employer.
ROUND FIVE: Which account(s) must be offered with underlying insurance coverage?
Generally both and HRA and HSA. However the requirements for each vary.
An HSA must be offered with an HSA-compatible health insurance plan. An HSA-compatible health plan must fit specific guidelines regarding the minimum deductible and maximum out-of-pocket expenses. No benefits can be paid from the plan, except for preventive care, prior to meeting the deductible.
An HRA can be provided with any comprehensive group health plan as long as it meets the minimum requirements as required by the Affordable Care Act. This is also called an integrated HRA. Generally a stand-alone HRA is not permitted, except for a Limited HRA or Retirement HRA.
So how did you do? Can you distinguish between an HRA or HSA? Share in the comments below.