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

Health Reimbursement Arrangement (HRA) and Health Savings Account (HSA) are popular healthcare options that individuals can utilize to save on medical expenses and enjoy tax benefits. Both HRA and HSA aim to provide financial assistance for eligible healthcare costs, but they differ in how they are funded and used.

Health Reimbursement Arrangement (HRA):

• HRA is an employer-funded benefit that reimburses employees for out-of-pocket medical expenses.
• Employers contribute a specific amount to the HRA, and employees can use these funds to pay for qualifying medical expenses.
• Unused funds in HRA typically do not rollover to the next year, and the account is generally tied to employment with the company.

Health Savings Account (HSA):

• HSA is a personal savings account that individuals can contribute to for medical expenses.
• Individuals with a high-deductible health plan (HDHP) are eligible to open an HSA and make tax-deductible contributions.
• Unlike HRA, funds in an HSA can be rolled over from year to year, even if you change jobs or health plans.

Both HRA and HSA offer tax advantages and can help individuals better manage their healthcare costs. When choosing between HRA and HSA, consider factors such as your healthcare needs, employer offerings, and long-term financial goals.

Health Reimbursement Arrangement (HRA) and Health Savings Account (HSA) serve as two powerful tools for managing healthcare expenses, each providing unique benefits worth exploring.

Health Reimbursement Arrangement (HRA):

• As an employer-sponsored program, the HRA allows employees to seek reimbursement for various out-of-pocket medical costs, making it a great perk in workplace health benefits.
• The specific amount funded by the employer varies, but it creates a safety net for employees to cover necessary healthcare expenses.
• Notably, HRA funds do not roll over year after year, emphasizing the importance of planning and utilizing these resources while employed.

Health Savings Account (HSA):

• Unlike HRAs, HSAs offer individuals the opportunity to save and grow their funds for medical expenses tax-free, provided they are enrolled in a high-deductible health plan (HDHP).
• HSAs empower individuals to take charge of their healthcare finances, with contributions being tax-deductible and withdrawals for medical expenses being tax-free.
• The flexibility of HSAs allows the funds to roll over annually, catering to those who prefer to save for future medical needs, even as they change jobs or insurance plans.

Both HRAs and HSAs provide significant financial advantages, helping you manage healthcare costs while enjoying tax benefits. When deciding which is right for you, consider your personal health needs, your employer's offerings, and how you envision your financial future.