Understanding the Difference Between HRA and HSA: Which One is Right for You?

When it comes to managing your healthcare expenses and saving money for medical needs, two popular options in the United States are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). While both serve as valuable tools for saving on healthcare costs, they have key differences that individuals should be aware of.

Health Reimbursement Arrangement (HRA):

• Employer-funded benefit that reimburses employees for qualified medical expenses
• Funds are contributed solely by the employer
• Unused funds may or may not roll over to the next year, depending on the plan
• Not portable – funds belong to the employer
• Can be used in conjunction with a high-deductible health plan or other insurance

Health Savings Account (HSA):

• Personal savings account that allows individuals to contribute pre-tax income for medical expenses
• Contributions can be made by either the individual or the employer
• Funds are owned by the individual and can be rolled over indefinitely
• Portable – remains with the individual even if they change jobs or insurance plans
• Requires enrollment in a high-deductible health plan

When deciding between an HRA and an HSA, it's important to consider factors such as who contributes to the account, fund ownership, rollover options, and portability. Additionally, understanding the respective rules and requirements of each option can help individuals make an informed choice based on their healthcare needs and financial goals.

Understanding the nuances between Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) is crucial for making the best financial decision for your healthcare needs.