HSA, HRA and FSA are threehealthcare benefits acronyms which can be very confusing. Perhaps you have signed up for one, only to find it was another. Knowing the difference between the three is crucial when it comes to employee benefits administration.
HSA (Health Savings Account)
With HSA employers have the option of contributing funds into the plan which are non-taxable. However, the owner of the account will be the employee, and they have the option of contributing funds into the account pre-tax. HSA accounts roll over from one year to the next, so employees don’t have to worry about losing them if they are not used. The HSA also acts as a retirement plan as it can gain interest overtime and funds can be continually placed in it. Once the owner of the account turns 65 they can access the funds in the same manner as a 401K. However, the HSA cannot be combined with the medical FSA.
HRA (Health Reimbursement Arrangement)
The HRA is combined with a health plan which has a high deductible. As with the HSA, employers can place funds into the account which are non-taxable. However, employees cannot contribute to the HRA, and the plan itself is designed by their employer. The employer will also dictate who can use the HRA and when. Whereas the employee owns the HSA the HRA account is owned by the employer. Once an employee leaves the company they are ineligible from accessing it. An HRA may be integrated with a health plan or used by retirees.
FSA (Flexible Spending Account)
With the FSA employees can contribute funds into the account pre-tax. Employers can also do the same, and are the true owners of these accounts. This means that employees aren’t allowed to use the account once their employment with the company has been terminated. The Flexible Spending Account does not roll over from one year to the next, which means that if the funds are not used within a given year then they are lost. FSA accounts are further broken down into three types. These types are Limited Purpose FSA, Dependent Care and Medical FSA.
With a Limited Purpose FSA the funds are restricted to vision or dental services, and are often associated with an HSA. The Dependent Care FSA is reserved for children (dependents of the employee) who are 13 years of age or younger). The Medical FSA is used for vision, dental and other eligible medical services.
The Bottom Line
These are the primary differences between the three plans. While there are some similarities between them, it is important to understand the differences so that you know what you’re getting. No employee or employer should choose a plan without fully understanding what that plan entails. With some of these plans the funds must be used within the current year or they will be lost next year, while others can be rolled over. Some plans can only be used at the company where you currently work, so if you leave, the plan cannot be taken with you.