HSA vs. HRA: What’s the difference, and which is right for you?
These pretax benefits can help you save big on healthcare. We explain the pros of HSA vs. HRA so you can decide if one or both makes sense for you.
Healthcare can be expensive for both employers and employees. That’s why many companies offer ways to help offset the costs for everyone. Two common tools: health reimbursement arrangements (HRAs) and health savings accounts (HSAs).
In some ways, these plans are similar. Both are a pretax benefit. Both help you pay for qualified medical expenses. And both let your employer add money to your account.
But there are also key differences between an HSA vs. HRA. And to figure out if one or both is right for you, you’ll need to take a close look at a few factors, including:
- Your health plan deductible.
- What you can afford to contribute to an HSA. (Only employers can contribute to an HRA.)
- Your plans to stay with your company (or not).
Here’s a closer look at the 2 options to help you make the best decision for you.
Who is eligible?
Employers of any size can generally offer some form of an HRA, says Bill Sweetnam, JD. Sweetnam is the legislative and technical director of the Employers Council on Flexible Compensation. That said, even if your employer does offer an HRA, you may not always be eligible under the rules set by your employer. You need to check your plan benefits to make sure, Sweetnam adds.
There are 3 main types of HRAs:
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). This is for companies that have less than 50 full-time workers. Companies this small are not required to provide insurance to their employees. A QSEHRA lets small companies help with certain healthcare expenses such as premiums and coinsurance. You must have your own individual health insurance policy to be offered a QSEHRA.
- Individual Coverage HRA (ICHRA). This is for all companies that have at least 1 employee who isn’t a self-employed owner or the spouse of a self-employed owner. It can be offered only to employees who are covered by their own health insurance policy, rather than as part of group health insurance.
- Excepted Benefit HRA (GCHRA). This is available to employers that already offer a group health insurance policy. It helps employees pay for out-of-pocket expenses. On the list: deductibles, copays, and medical expenses that the insurance plan doesn’t pay for.
An HSA is a bit different. You can open an HSA only if you have a high-deductible health plan (HDHP). This is a health plan that covers only preventive services before you meet your deductible. Other costs are paid out of pocket. For plan year 2022, the deductible for an HDHP must be at least $1,400 for a single person. For a family, it must be at least $2,800.
For more helpful guidance on understanding your health plan and benefits, ask if your health plan offers Wellframe.
Who can contribute?
Only your employer can contribute to your HRA, says Sweetnam. The rules are more generous for an HSA. These can be funded by:
- Your employer.
- A family member.
- Anyone else who would like to give you money toward your HSA account.
Employers aren’t required to contribute to HSAs, says Kevin Edwards. Edwards is president of Integrity Now Insurance Brokers in Long Beach, California. “But many do. These deposits make HSA programs more attractive to employees. It helps reduce their out-of-pocket financial responsibility.”
How much can be contributed?
If you have an HRA, it depends on the type.
- ICHRA: It is entirely up to the employer how much they contribute. There are no annual minimum or maximum contribution requirements.
- QSEHRA: Employers select how much money to contribute to employees. They can contribute up to $5,300 for individuals. For households, the maximum was $10,700 in 2021.
- GCHRA: The annual contribution must be limited to $1,800 per year. (This number is adjusted yearly for inflation).
It’s different for an HSA. For 2022, if you have an HDHP, you can contribute up to $3,650 for self-only coverage. For family coverage, you can put up to $7,300 into an HSA. These funds roll over year to year if you don’t spend them. They can also earn interest or other earnings. These are not taxable.
Who owns the account?
Your employer owns the HRA. “They can establish guidelines that stipulate the maximum amount of money that will be contributed each year. And they decide if any of the leftover funds can be carried over to future years or returned to the employer,” says Edwards. If you leave your job, the money will also be returned to your employer.
If you have an HSA, the money is yours, free and clear. And if you switch jobs midyear? You can take your HSA — and employer contributions so far — with you.
How can I use the money?
If you have an HRA, your employer decides what will be covered. They choose from the list of qualified medical expenses set by the Internal Revenue Service, says Sweetnam. This may also depend on the type of HRA your company offers. Some HRAs cover only dental or vision expenses.
If you have an HSA, you can use it for qualified medical expenses like:
- Eyeglasses and contact lenses.
- Birth control pills.
To find the whole list, go to the Internal Revenue Service’s website. Look for “Publication 502, Medical and Dental Expenses.”
Understanding the differences between an HSA vs. HRA can help you make the best decisions for your financial health. Still have questions? Check to see if your health plan offers a digital health management app such as Wellframe. You can search Wellframe’s private library for more information on HRAs and HSAs. Or you can connect with your care advocate. They can help you get the answers you need.
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