What is the Difference Between HRA and HSA?
🆚 Go to Comparative Table 🆚Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are both tools that help individuals pay for healthcare expenses, but they have key differences in terms of ownership, eligibility, and tax advantages. Here are the main differences between HRAs and HSAs:
- Ownership: HRAs are owned and funded by employers, while HSAs are owned by individual account holders.
- Eligibility: Employees whose employers offer HRAs and meet employer-specific eligibility requirements can participate in an HRA. In contrast, individuals with a High Deductible Health Plan (HDHP) who meet all IRS-specific eligibility criteria can participate in an HSA.
- Contributions: Only employers can contribute to HRAs, while both individuals and employers, as well as spouses and family members of the account holder, can contribute to HSAs.
- Tax Advantages: Both HRAs and HSAs offer tax benefits related to healthcare costs. HSAs have a triple tax advantage, as contributions are tax-deductible, earnings grow tax-free, and qualified distributions are tax-free. HRAs, on the other hand, are tax-free for both employees and employers.
- Portability: HSAs belong to the individual account holder and can be taken with them when they leave their job, while HRAs are owned by the employer and do not transition with the employee.
When deciding between an HRA and an HSA, it's essential to consider your specific needs, circumstances, and eligibility requirements. If you are enrolled in an HDHP, you may be eligible for an HSA, which can help pay for qualified medical expenses and save for retirement. On the other hand, if your employer offers an HRA, it can help reimburse you for qualified medical expenses and sometimes health insurance premiums.
Comparative Table: HRA vs HSA
Here is a table comparing the differences between Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs):
| Feature | HRA | HSA |
|---|---|---|
| Ownership | Employer-owned | Individually-owned |
| Funding | Funded and managed by the employer | Funded by yourself, your employer, or both |
| Health Plan Compatibility | Can be integrated with either HSA-qualified or traditional health plans | Requires an HSA-qualified/High-deductible health plan |
| Eligibility | Available to all employees if the company offers it | Must have a high deductible health insurance plan, not be covered under other health insurance that is not an HDHP, and not be a dependent on someone else's tax return |
| Contributions | Contributions from employer only | Can contribute from your earnings, employer contributions, or both |
| Investment Options | Employer-managed, no option for employee to invest | Can invest and earn interest or other returns tax-free |
| Portability | Employer-owned, no portability | Individually-owned, portable |
| Expense Coverage | Covers various healthcare expenses, including deductibles, coinsurance, and copays | Covers various healthcare expenses, but not insurance premiums, unless specifically qualified |
In summary, HRAs are employer-owned and employer-funded accounts designed to help employees with healthcare expenses, while HSAs are individually-owned and can be funded by both the individual and their employer. HSAs are portable and can be invested, while HRAs are not portable and are employer-managed.
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