So what’s the difference between all these acronyms for health benefit accounts? Here’s the quick version.
A HSA (Health Savings Account) is a tax-advantaged savings account that can be used to pay for qualifying medical expenses. Contributions to an HSA are tax-deductible and withdrawals for qualifying expenses are tax-free. HSAs are typically paired with a high-deductible health plan (HDHP). Monies put into the account are the employees forever.
A HRA (Health Reimbursement Arrangement) is a type of employer-funded health benefit plan that reimburses employees for certain medical expenses. The employer contributes funds to the HRA, and employees use the funds to pay for qualifying medical expenses. The employer owns these funds.
A FSA (Flexible Spending Account) is a type of employer-funded health benefit plan that allows employees to set aside pre-tax dollars to pay for qualifying medical expenses. The funds in a FSA are typically used to pay for out-of-pocket medical expenses that are not covered by insurance. Any monies unused are returned to the employer.
In short, a HSA is a tax-advantaged savings account that is used to pay for medical expenses and must be paired with a HDHP, an HRA is a employer-funded health benefit plan that reimburses employees for certain medical expenses and a FSA is a employer-funded health benefit plan that allows employees to set aside pre-tax dollars to pay for medical expenses.
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