HRA vs HSA– The Similarities & Differences

Most people have a hard time understanding the offerings of popular healthcare plans. While some plans are flexible others tend to provide a ton of benefits.

If you are planning to avail a healthcare plan that works for you, then you should know about Health Reimbursement Arrangement & Health Savings account. Both of these plans comprise guidelines, spending limits & other minute details. Superficially, they seem to serve a similar purpose. However, there are some key similarities & differences between HRA & HSA. Read on to know about them.

What is a Health Reimbursement Arrangement (HRA)?

It is an employer-funded, IRS-approved, tax-advantaged health benefit for employees. This beneficial healthcare plan can be availed by the employees for eligible medical expenses.

One deal-breaker about HRA is that When you leave the company you cannot take the HRA fund with you. Since the employer contributed to the funds, they own it.

In recent times, HRA has seen in a dip in popularity due to the emergence of another healthcare plan called Health Savings account (HSA). It offers a gamut of benefits as compared to HRA.  On the other hand, HRA can be leveraged by small businesses that don’t have the flexibility to provide group health insurance plans.

What is a Health Savings Account (HSA)?

HSA is an account in which you make contributions that can be leveraged later for qualified healthcare expenses. This account does come with some amazing tax benefits.

Eligibility Criteria: This account is created for people that are enrolled in High-deductible Health Plans (HDHP).

Funds are usually contributed by the individual. But in an employer-sponsored HSA, even the employer contributes to the fund. These funds can be availed by individuals for eligible medical expenses like prescriptions drugs, dental, vision & other healthcare expenses. These expenses are tax-free!

However, there is a limit to contributions made to HSA. The contribution limits for 2021 are as follows:

• Single Coverage – $ 3,600
• Family Coverage – $ 7,100

One of the best things about HSA is that it is portable. You don’t have to worry about healthcare costs while leaving the company.

Similarities between HRA & HSA

• Both HRA & HSA have been created with the idea to make healthcare more accessible & affordable for employees & their families.
• Individuals who hold an HSA or HRA can leverage the funds to pay for eligible health expenses.
• These healthcare accounts are a part of consumer-directed healthcare. They are provided to individuals so that they can actively involve themselves in personal healthcare.
• People can choose when & how to spend their healthcare dollars according to the guidelines set by employers or IRS.
• HRA & HSA can be employer-sponsored depending on the type of plan you chose.

Differences between HRA & HSA

Here are some major differences between the Health Reimbursement Arrangement & Health Savings account:

Eligibility Criteria

For HRA:

• Only an employer can open a Health Reimbursement Arrangement for employees.
• ICHRA – Employers might offer it to a certain category of employees or make it open to all the employees.

For HSA:

• A Health Savings account can be opened by you or your employer.
• Individuals need to enrol themselves in an HDHP if they want to avail HSA.
• Unemployed, self-employed & people work at a place where the employer doesn’t offer HSA can easily open an HSA.

Account Ownership

Employees usually own the Health Savings Account whereas employers own the Health Reimbursement Arrangement. So, if an employee decides to leave the company, he/she can only retain HSA & not HRA.

Individuals can avail funds from the HSA for eligible medical expenses even after leaving the company provided, they are enrolled in a High Deductible Health Plan (HDHP).They can also continue to make new contributions into the HSA. The same rules apply for an employer-sponsored HSA.

Insurance Requirements & Account Types

HSA is pretty straightforward. It doesn’t comprise of any account variations. However, you need to be enrolled in an eligible HDHP if you want to open a Health Savings Account & contribute to it.

But when it comes to HRA, there are 6 types of accounts namely:

1. Individual coverage (ICHRA) – Offered by the employer & covers only the health insurance premiums of the individual.
2. Group coverage HRA – It is offered along with the group health plan & covers expenses approved by the IRS.

• Qualified Small Employer (QSEHRA) – Employers who have less than 50 employees can leverage this HRA. It covers employer-approved expenses & non-health group insurance premiums.

1. Excepted Benefit HRA – Can be only used for benefits like short-term disability, dental, vision & other issues.
2. Retiree HRA–Helps retirees to pay for eligible medical expenses.
3. Dental/Vision HRA – Provides tax-free reimbursements for qualified vision & dental expenses.

Funding and Taxes

The funds for the HRA are contributed by the employer whereas in HSA contributions can be done by the employer, employee or both.

HRA – Terms are set by the employer for expenses & eligible reimbursements. In addition to that, tax reductions can be availed by the employer only. However, the employee’s income doesn’t include HRA benefits.

HSA – IRS has laid out a set of guidelines for HSA eligible expenses. Usually, the account holder contributes to the account. The employee earns tax-free interest on the account balance & even the employer earns tax benefits for contributions made.

Comparison between HSA & HRA

Criteria	Health Savings Account (HSA)	Health Reimbursement Arrangement (HRA)
Portability	The account holder has ownership.	Employer dictates the terms & there is no portability.
Can you Invest?	You can invest after your account reaches a minimum balance criterion.	Cannot Invest
Are the funds available after retirement?	The funds can be availed after retirement.	Depends on the type of plan you choose.
Is there any Tax-advantage?	Tax-free contributions for the employer & the account holder.	Only for the employer
Source of Funding	Depends on the plan. Usually, funding is borne by the account holder. But sometimes, the employer has to fund as well.	Funded only by the employer.
Is there any Rollover or accumulation facility?	No limit on rollovers.	Rollover or accumulation is dependent on the plan.
Can you integrate with other tax-advantaged accounts?	No	Can be integrated with Flexible Spending Account (FSA)
Additional Interest Earnings	You can easily earn tax-free interest.	No

It is important to know about the similarities & differences between HRA & HSA as it will help you to make informed decisions about your healthcare plans.

Author’s Signature: -Core Documents is the country’s leading provider of cost-effective, tax-saving benefit plan documents for Section 125 Cafeteria plans and Health Reimbursement Arrangements. The Trusted Source since 1997 with over 44,000 satisfied agents and employer groups nationwide that rely upon Core Documents for free plan design & consulting services for: Section 125 POP, HSA, FSA, HRA, ICHRA & QSEHRA plan documents & updates, ERISA Wrap SPDs, and administration services.