FSA vs HRA vs HSA

FSA vs HRA vs HSA – What are the Differences?

FSA vs HRA vs HSA‘What are the differences between an FSA vs HRA vs HSA?’ is a common question for many people. Here’s a quick overview of the different accounts, how they’re similar and how they standalone. At the bottom of the post is an infographic with a visual representation of the comparisons.

When it comes to consumer driven healthcare (CDH), there are three popular employer-sponsored benefit accounts: Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA), and Health Savings Account (HSA). Each account has some overlapping similarities, but each account is remarkably different.

The similarities among the three accounts include:

  • Sponsored by employers
  • Designed to help offset the high cost of medical care
  • Enables individuals to take control of their personal healthcare needs
  • Permits tax-advantaged contributions

While they have several significant similarities, each account is unique. Here’s a quick guide that highlights the differences between an FSA vs HRA vs HSA, broken down individually:

Flexible Spending Account (FSA)

Flexible Spending Account

Funded by:

Flexible Spending Accounts are set up and owned by the employer, but are funded by the employee (employers may choose to contribute).

Contribution limits:

Individuals with an FSA make pre-taxable contributions, and as a result, reduce their tax liability. In 2017, the FSA maximum contribution is $2,600. Learn more about 2017 FSA Contribution Limits

Eligible expenses:

The employee and qualified dependents can use the FSA to pay for a wide range of out-of-pocket medical expenses (approved by the IRS). Expenses include prescriptions, eye exams and treatments, dental care, first aid supplies, and more.

Rollover or Grace Period:

For unused FSA funds at the end of the plan year, there are three options which are plan dependent for account holders:

  1. Use it or lose it
  2. Carryover of $500 maximum
  3. Grace period of 2.5 months for individuals to use any leftover money

Portability:

FSAs are not portable. The account is owned by the employer, which means the individual cannot keep the FSA if his or her job status changes due to changing employers, job loss or retirement.

Need to know!

  • FSAs are notional accounts, so the employee must incur a qualified medical expense before any funds are paid out.
  • One significant advantage to the employee is that the full annual election amount is available for use on day one of the plan year; funds do not have to accrue before using them.

Health Reimbursement Arrangement (HRA)

Funded by:

A Health Reimbursement Arrangement is an employer-owned and funded account.

Contribution limits:

There are no government limits on funding; the employer determines the contribution amount in the account each plan year. The employer is the sole contributor to the HRA, therefore the employer receives the tax breaks. Contributions do not affect and are not counted against the employee’s income.

Eligible Expenses:

Employees with an HRA use the funds to pay for qualified out-of-pocket medical expenses for themselves and their qualified dependents. Unlike an FSA and HSA, the list of qualified expenses is determined by the employer and may vary from one company to the next. Starting January 1, 2017, small employers may now offer standalone HRAs that can be used to cover the cost of health insurance premiums. Learn more about the 21st Century Cures Act.

Rollover or Grace Period:

Depending on plan parameters, unused funds in an HRA may rollover each year.

Portability:

An HRA is owned by the employer, and therefore is not portable. When an individual’s employment status changes (due to job loss, leaving the company, or retirement), the HRA funds stay with the employer. However, employers may set up a retirement HRA which allows continuation.

Need to know!

  • An HRA is considered a notional account, in that the employee must incur a qualified medical expense before any funds are paid out.
  • One disadvantage of HRAs is that self-employed persons are generally ineligible to have an HRA. However, if the self-employed’s spouse is an employee that receives a paycheck (and W-2) from the business, then the spouse can have an HRA.

Health Savings Account (HSA)

HSA Enrollment

Funded by:

HSAs are funded and owned by the individual (some employers may contribute).

Contribution limits:

In 2017, individuals may contribute a maximum $3,400 and families may contribute $6,750. Learn more about 2017 HSA Contribution Limits

Eligible expenses:

HSAs may be used to pay for a wide range of IRS-approved out-of-pocket medical expenses, including COBRA and long-term care premiums as well as Medicare Parts A and B. View a list of HSA eligible expenses.

Plan requirement:

In order to be eligible for an HSA, the individual must be enrolled in a qualified high deductible health plan (HDHP).

Tax advantages:

HSAs offer the following tax advantages:

  • Contributions are made on a pre-tax basis
  • Withdrawals for qualified medical expenses are tax and penalty free
  • Interest and investment earnings are tax free

Rollover or Grace Period:

At the end of the year, any unused funds rollover in the account to the following year for future use.

Investment:

Account owners may invest their HSA dollars once they meet a minimum threshold (varies by plan provider).

Portability:

Since it’s an individually-owned account, the HSA stays with the individual for the life of the account no matter the change in employment status.

Need to know!

  • Account owners over age 55 can contribute an additional $1,000 per year over the annual limit for ‘catch up’ contributions.
  • In retirement age, HSA funds withdrawn for non-medical expenses are treated as income (taxed, but not penalized).

 

FSA vs HRA vs HSA Infographic:

FSA vs HRA vs HSA

Talk to your company’s HR representative today to find out how you can make the most of your employer-sponsored benefit account(s).

 

DataPath Summit is a cloud-based administration solution for FSA, HRA, and Transit/Commuter accounts, with streamlined financial processes such as benefits debit cards and electronic payments. HSAToday is a cloud-based, full-service HSA management platform that provides HSA administration, HSA cards, investments, and deposits in-house.  

x

Subscribe to DataPath News


  • Blogs
  • Events
  • Industry News
  • Press Releases
  • and more...

Enter your email address below to subscribe and receive notifications of new content from DataPath.

x