What is the Difference Between HSA and HRA?

When it comes to managing your healthcare expenses, understanding the difference between a Health Savings Account (HSA) and a Health Reimbursement Arrangement (HRA) is crucial. Both accounts are beneficial in helping individuals save money for medical costs, but they have some key differences that set them apart.

Let's break down the differences between an HSA and an HRA:

Health Savings Account (HSA)

• Individuals must be enrolled in a high-deductible health plan (HDHP) to qualify for an HSA.
• Contributions to an HSA are tax-deductible and grow tax-free.
• Funds in an HSA can be rolled over from year to year with no expiration.
• Account holders can invest HSA funds to help them grow over time.
• Withdrawals for qualified medical expenses are tax-free.

Health Reimbursement Arrangement (HRA)

• Employers solely contribute to an HRA on behalf of employees.
• HRA funds are not portable and typically do not roll over from year to year.
• Reimbursements from an HRA are tax-free for both employers and employees.
• HRA funds can only be used for eligible medical expenses.
• HRA plans are more restrictive in terms of who can contribute and access the funds.

Understanding the nuances of both HSA and HRA plans can help individuals make informed decisions about their healthcare savings options. While HSAs offer more flexibility and long-term savings potential, HRAs provide a benefit that is solely funded by the employer.

Understanding healthcare financing is essential for managing personal expenses, and that's why distinguishing between a Health Savings Account (HSA) and a Health Reimbursement Arrangement (HRA) can empower you to take control of your medical costs.