November 6, 2018

Healthcare Showdown...HRA vs. HSA

There are a lot of acronyms used when discussing nontraditional health benefits options. Two of the most popular and promising options are HSAs (Health Savings Accounts) and HRAs (Health Reimbursement Arrangements).  Even though they both have a similar premise, there are a few key differences.

If you have an HSA/HRA or you are considering offering one to your employees, consider the following:

HRAs vs HSAs: HRAs are owned by the employer, HSAs are owned by the individual

HRAs are employer-sponsored plans. An employer sets allowances for employees who can then use that money to be reimbursed for medical expenses. HSAs, meanwhile, are individual accounts that employers sometimes choose to contribute to. While HSAs are often packaged as "employer benefits," they are really more like IRAs in that individuals can set them up and contribute to them on their own.

HRAs vs HSAs: HSAs are actual accounts

When money is put into an HSA, it belongs to the account holder. If an employer contributes to an employee's HSA, the employee controls that money immediately, even if they leave the company.

When money is added to an HRA, it still belongs to the employer until an actual medical expense is incurred. If an employee leaves a company without spending all the money in the HRA, they lose access to that money.

HRAs vs HSAs: HSAs don't cover health insurance premiums

HRAs are designed to act as full health benefits solutions so that employers can pay all or some of the medical expenses of employees. HSAs are meant to cover expenses that fall under the deductible of a health insurance plan. As such, HSA money generally can't be used to pay for the insurance itself.

HRAs vs HSAs: HSAs require compatible plans

In order to contribute to an HSA, an individual must have a high-deductible health plan (HDHP). High-deductible plans make a lot of sense for most Americans, so this isn't a problem, but keep in mind that HRAs don't have that restriction. Instead, most HRAs only require participants to have minimum essential coverage.

HRAs vs HSAs: The Bottom Line

HSAs and HRAs are both really great products. In general though, here's my take on things:

  • Employers should pretty much always offer HRAs instead of HSAs to their employees, if they must decide between the two. HRAs are more flexible and they allow reimbursement for health insurance premiums.
  • That said, HSAs are also great for most people. Whenever possible, consider getting an HSA just like you would an IRA.

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