Understanding HSA and HRA: What are they and how do they work?

When it comes to managing your healthcare expenses, understanding the difference between HSA (Health Savings Account) and HRA (Health Reimbursement Arrangement) can be crucial. Both accounts help you save money for medical expenses, but they work in different ways.

Let's break it down:

Health Savings Account (HSA)

An HSA is a tax-advantaged savings account that allows individuals to save for qualified medical expenses. Here's how it works:

• You contribute pre-tax money to your HSA account.
• The funds in your HSA can be used for various medical expenses, including deductibles, copayments, and more.
• Your HSA balance rolls over from year to year, so you don't lose the money if you don't use it all.
• HSAs are portable, meaning you can take it with you if you change jobs or retire.

Health Reimbursement Arrangement (HRA)

An HRA is an employer-funded arrangement that reimburses employees for qualified medical expenses. Here's what you need to know about HRAs:

• Employers contribute funds to the HRA on behalf of employees.
• Employees can use the HRA funds to pay for eligible healthcare expenses.
• HRA funds do not rollover from year to year, and the account is typically tied to your employer.

Both HSAs and HRAs offer tax advantages and can help you save on healthcare costs. Understanding how each account works can help you choose the best option for your needs.

When considering options for managing healthcare costs, it's important to understand both HSA (Health Savings Account) and HRA (Health Reimbursement Arrangement). Each has its unique advantages and serves different purposes for your healthcare budgeting.

Let's dive deeper into these two accounts:

Health Savings Account (HSA)

An HSA is designed to help you save for medical expenses on a tax-advantaged basis. Here's what sets it apart:

• You deposit pre-tax dollars into your HSA, effectively lowering your taxable income.
• The money can be used tax-free for a variety of healthcare costs, which may include prescriptions, vision care, and dental work.
• Any unused funds in your HSA continue to grow tax-free, and can be used in future years as well.
• More than just a savings tool, HSAs can also be invested like a retirement account, allowing your savings to potentially increase over time.

Health Reimbursement Arrangement (HRA)

HRAs provide a different structure, primarily funded by your employer, which helps cover your medical expenses. Important points about HRAs include:

• The entire fund is provided by your employer, making it a valuable benefit.
• HRAs can be designed to reimburse you for everything from insurance premiums to out-of-pocket expenses.
• Unlike HSAs, remaining HRA funds typically do not carry over at the end of the year, so it’s beneficial to spend the funds wisely.

Whether you choose an HSA or an HRA, knowing their features can help you better manage your healthcare expenses and plan for the future.