HSAs, FSAs, or HRAs? What is the Difference?
Healthcare accounts are not all created equal. We compare some of the main differences between HSAs, FSAs and HRAs.
|Health Savings Account (HSA)||Flexible Savings Account (FSA)||Health Reimbursement Arrangement (HRA)|
|Definition||An HSA is a tax-advantaged savings account that is used in combination with a High Deductible Health Plan (HDHP). Consumers use the HSA funds to cover qualified medical expenses.||An employer-established, tax-advantaged account funded by the employee to pay for qualified medical expenses with pre-tax dollars.||An employer-funded plan that may be used to reimburse employees for medical expenses.|
|Contributors||Individual/Employee, Employer||Employee and/or Employer||Employer Only|
|Annual Contribution Limit? (See www.irs.gov for details)||Yes.¹||Yes.²||Yes.³|
|Can unused funds carry over?||Yes. The individual owns the account and any contributions made to it, regardless of the source or timing of the contribution.||Limited to up to $500 carryover to the immediately following plan year OR a grace period⁴||Determined by employers plan design|
|Are funds portable? (Job change, health plans, retirement)||Yes||No||No|
|Tax Benefit?||Contributions are tax free, interest and investment gains are tax free and withdrawals are tax free when used for qualified expenses or post retirement.||Employer/Payroll deposits and claim payments are tax free.||Employer deposits and claim payments are tax free.|
|Interest Earning?||Yes. And if account balance reaches the minimum balance requirement, the funds can be invested and those gains are also tax free.||No||No|
¹ IRS-imposed HSA limits for 2014: The 2014 annual HSA contribution limit for individuals with self-only HDHP coverage is $3,300 (a $50 increase from 2013), and the limit for individuals with family HDHP coverage is $6,550 (a $100 increase from 2013). Annual catch-up contributions for those 55 and over: $1,000.
² In 2014, employee contributions for an FSA cannot exceed $2,500 per IRS Rules. Employer contributions are not subject to limits, but may not discriminate in favor of highly compensated individuals. If employer contributions exceed $500, additional compliance obligations apply.
³ The IRS does not impose HRA limits; limits may be set by the employer.
⁴ Employers may elect to have (i) a “grace” period for employees to use leftover funds from a previous plan year to pay for expenses incurred in the period up to 2 months and 15 days into the new plan year; or (ii) a carryover of up to $500 to the new plan year for payment of medical expenses during the entire year in which it is carried over.