Understanding the Difference Between HRA and HSA Health Savings Accounts

Health savings accounts (HSAs) and health reimbursement arrangements (HRAs) are both types of accounts that can help you save money for medical expenses, but they have some key differences that you need to be aware of.

HSAs and HRAs are both offered by employers to help employees cover healthcare costs, but the way they work and their tax implications vary. Here's a breakdown of the main differences between HRA and HSA:

Health Reimbursement Arrangement (HRA)

• Employer-funded account that reimburses employees for qualified medical expenses
• Employer controls the account and decides how much to contribute
• Unused funds may roll over year to year, but the employer can set limits
• Employees are not eligible to take the HRA account with them if they leave the company
• Employer contributions are tax-deductible for the employer, and tax-free for the employee

Health Savings Account (HSA)

• Employee-owned account that can be funded by the employer, employee, or both
• Contributions can be made pre-tax, reducing taxable income for the employee
• Unused funds roll over year to year and are portable, even if the employee changes jobs
• Can only be used in conjunction with a high-deductible health plan (HDHP)
• Contributions are tax-deductible and withdrawals for qualified medical expenses are tax-free

In summary, the main difference between HRA and HSA lies in who owns the account and the flexibility of funds. HRAs are employer-owned and may have restrictions on fund usage, while HSAs are employee-owned and offer more flexibility and portability.

Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) both serve the purpose of alleviating medical expenses, yet they differ significantly in structure and benefits.