HSA-FSA-HRA: Whats the Difference?
HSA-FSA-HRA: Whats the Difference? The newest push to reduce rising healthcare costs is often referred to as Consumer Driven Health Plans with Health Savings Accounts (HSA), Flexible Savings Accounts (FSA) or Health Reimbursement Accounts (HRA) to offset the out-of-pocket costs to the employee.
Key Differences Between Health Accounts
- FSAs and HRAs can be used with any type of health plan and are offered through and owned by employers.
- HSAs are sometimes offered by employers, but are owned by the individual account holders. HSAs can only be used with eligible high-deductible health plans.
Other differences include:
|HSA Health Savings Accounts||FSA Flexible Savings Accounts||HRA Health Reimbursement Accounts|
|Contributions||Account owners make tax-deductible contributions. Some employers will see that contributions are deducted before taxes in payroll checks. Employers, family members and any other individuals can also contribute.||Employee makes pre-tax contributions. Employer can contribute as well, although that is not common.||Employer deposits an amount each year for each individual or family.|
|Funds are available for withdrawal as defined in the Funds Availability Disclosure (PDF).||The entire contribution amount is available on the first day of the plan year.||The employer chooses when contributions become available for spending.|
|Funds remaining at the end of the plan year remain in the account for future medical expenses.||Funds remaining at the end of the plan year (or grace period following the plan year, if any) are forfeited to the employer.||Funds remaining at the end of the year can be carried over if the employer allows.|
|The IRS establishes annual contribution limits.||The employer determines contribution limits. Beginning January 1, 2013, the pre-tax contributions limit will be $2,500 for a health care FSA.||The employer sets the contribution amount.|
|Payment options||OptumHealth bank offers a debit card, online bill payment or checks to pay medical bills. Self-reimbursement for qualified medical expenses is also allowed.||Debit card, if offered by account administrator, or account holders pay for eligible expenses and submit requests for reimbursement.||Debit card, if offered by account administrator, or account holders pay for eligible expenses and submit requests for reimbursement.|
|Interest||Tax-advantaged interest can accrue.||No interest.||Generally no interest accrues.|
|Investments*||Investment options are available.||No investment.||Investment options may be available, depending on employer’s benefit plan.|
|Tax implications**||Account distributions are income-tax free when used for qualified medical expenses.||Employee contributions are made pre-tax, reducing annual taxable income. Reimbursements are income-tax free.||Reimbursements are income-tax free.|
|Qualified Medical Expenses||Any out-of-pocket and unreimbursed expenses allowed under section 213(d) of the Internal Revenue Code, except amounts distributed to pay health insurance premiums*.* Premiums can be reimbursed for:
||Employers configure the account to reimburse all* or some of any otherwise unreimbursed expenses as defined under section 213(d) of the Internal Revenue Code.* Health insurance premiums and long-term care services are not reimbursable.Note: There are also FSAs for dependent care expenses and commuter expense accounts.||Employers configure the account to reimburse all* or some of any otherwise unreimbursed expenses as defined under section 213(d) of the Internal Revenue Code.* Long-term care services and premiums for coverage under employer pre-tax plans are not reimbursable.|
** States can choose to follow the federal tax treatment guidelines for health savings accounts (HSAs) or establish their own. Some states have chosen to tax HSA contributions. Talk to your financial advisor or consult your state department of revenue for more information.