Understanding the Difference Between an HSA and HRA - Which is Right for You?

Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) are both valuable tools that can help individuals manage their healthcare costs, but they have some key differences that are important to understand. Let's break down the distinctions between an HSA and an HRA, so you can make an informed decision on which option is right for you.

HSAs and HRAs both offer tax benefits and can be used to pay for eligible medical expenses, but there are some differences in terms of eligibility, ownership, withdrawal rules, and rollover options.

Health Savings Account (HSA)

• Available only to individuals with a high deductible health plan (HDHP).
• Owned by the account holder, so funds roll over from year to year.
• Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.
• Portable and can be taken from job to job.
• Can be used for both current medical expenses and future healthcare needs.

Health Reimbursement Arrangement (HRA)

• Employer-funded account used to reimburse employees for medical expenses.
• Owned and funded by the employer, so funds do not belong to the employee.
• Employer determines what expenses are eligible for reimbursement.
• Unused funds may roll over at the employer's discretion.
• Not portable, as the account stays with the employer if you change jobs.

When deciding between an HSA and HRA, consider your healthcare needs, employment situation, and preference for account ownership and portability.

Key Differences Between HSA and HRA:

• Ownership: HSA is owned by the individual, while HRA is owned by the employer.
• Eligibility: HSA requires a high deductible health plan, while HRA is typically offered by employers.
• Portability: HSAs are portable and can be taken from job to job, whereas HRAs stay with the employer.
• Rollover: HSAs allow funds to roll over from year to year, while HRAs may or may not allow rollovers depending on employer policies.

Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) serve as beneficial options for managing healthcare expenses, yet it's essential to recognize their fundamental differences.

While both HSAs and HRAs are tax-advantaged accounts designed to help you with qualified medical expenses, here's how they diverge:

• Eligibility: To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP), whereas HRAs are usually employer-sponsored plans available to employees.
• Ownership: An HSA is an account owned by the individual, allowing for mobility and continued use even after changing jobs. In contrast, an HRA remains the property of the employer.
• Contributions: HSAs can receive contributions from both the account holder and their employer, promoting a shared effort in healthcare savings. On the other hand, HRAs are entirely funded by the employer alone.
• Withdrawals: You can withdraw funds from an HSA tax-free any time for qualified medical costs, while HRA withdrawals are typically made through reimbursement after expenses are incurred.
• Unused Funds: An HSA allows you to roll over any unused funds year after year, giving your savings room to grow tax-free. Conversely, unused HRA funds usually don’t roll over and can be lost at the year’s end.

Both HSAs and HRAs can significantly alleviate healthcare expenses, but understanding their differences will empower you to make the best choice for your medical spending needs.