Employee Benefits
Looking for a way to save money on medical expenses? Pre-tax savings and spending accounts, like health reimbursement arrangements (HRAs) and health savings accounts (HSAs), can help.
Both types of accounts can help an employee pay for medical care by covering qualified medical expenses, including out-of-pocket costs. But there are some key differences. For example, you can take your HSA funds with you when you leave your job, but that option generally isn’t available for HRAs. Each also has different contribution limits.
Here are important details to know about HRAs vs. HSAs.
HRA | HSA | |
Who’s eligible? | Employees whose employers offer HRAs and who can meet employer-specific eligibility requirements | Individuals with an HDHP who can meet all IRS-specific eligibility requirements |
Who owns the account? | Employers | Individuals account holders |
Who can contribute? | Only employers | Both individuals and employers, as well as spouses and family members of the account holder |
What is the maximum contribution amount? | There are no maximum annual contribution limits for standard HRAs and ICHRAs, but QSEHRAs and EBHRAs have annual limits set by the IRS.1 | Set by the IRS, $4,300 for individuals and $8,550 for families in 20252* |
Does it earn interest? | No | Yes |
Does the money roll over year-to-year? | Typically no, but an employer may allow it | Yes |
Is the account portable if you change jobs? | Typically no, but an employer may allow you to use the remaining funds | Yes |
An HRA is a type of account that provides tax-free money to pay for qualified healthcare. HRAs are employer-funded plans and are offered as part of an employer-sponsored group health insurance plan. Only an employer can put money into an HRA, and employers set contribution and rollover limits. Employees typically lose these funds if they leave the company.
Contributions to an HRA aren’t taxed, and employees can only withdraw the money for qualified health-related expenses. Depending on the employer, some HRAs can also be used to reimburse health, vision, and dental insurance premiums.
There are several types of HRAs an employer might offer its employees. Some of the most common include:
Some advantages of an HRA include:
An HSA — not to be confused with a flexible spending account (FSA) — is a pre-tax account designed to help save on out-of-pocket qualified medical expenses, including therapy to treat a diagnosed mental condition.4** To qualify for an HSA, account holders must be enrolled in a high-deductible health plan (HDHP). A flexible spending account (FSA) — or flexible spending arrangement — deducts pre-tax money directly from employees’ paychecks to help them save for qualified healthcare expenses. FSA funds can be used to pay for things like deductibles, co-pays, and medical office visits.***
Both an employer and employee can contribute to an HSA account.
Contributions are limited to an annual maximum dictated by the government. The funds saved in an HSA are portable — meaning you take them with you if you retire or leave your job. They also carry over into the next year.
Employers who offer HDHPs might offer HSAs as part of their employee benefits package. However, individuals can also purchase their own HSA in the private marketplace. Employed, self-employed, and unemployed individuals can all contribute to an HSA, as long as they meet the following eligibility requirements:5
Some advantages of an HSA include:
You may have heard that you can’t have both an HSA and FSA. While IRS rules prevent people from having an HSA and a traditional FSA, those rules don’t apply to Limited Purpose FSAs. In fact, you actually need an HSA in order to have an LP-FSA. A Limited Purpose FSA can be used alongside an HSA to cover eligible dental and vision expenses, maximizing your tax-advantaged savings.5
The choice to use both your HSA and your LP-FSA is up to you. Electing to use both accounts in tandem can help save you money each year.
To choose between an HRA or HSA, consider your specific needs and circumstances. First, figure out if you meet the basic eligibility requirements, like being enrolled in an HDHP or meeting specific employer mandates. Eligible expenses for HRAs and HSAs include a wide range of medical costs, but it's important to check specific plan details to understand what is covered.5
Consult with your employer to help you weigh all your options.