HSA, HRA, or FSA…What is the Difference?

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Health care accounts are not all created equal. That’s why you need an experienced, trusted adviser to help you understand health care accounts. MNJ Insurance Solutions is here to help you understand the complex, and sometimes confusing, health care accounts and their acronyms, like HSAs, HRAs, and FSAs, so you can make an informed decision about the type of health plan and corresponding health account that is right for you.

Below is a chart to help compare Health Savings Accounts (HSA), Health Reimbursement Arrangements (HRA), and Flexible Spending Accounts (FSA) and highlight their differences in benefits.

  Health Savings Account (HSA) Health Reimbursement Arrangement (HRA) Flexible Spending Account (FSA)
Account definitions A tax-advantaged account used to pay for qualified medical expenses of the account holder, spouse, and/or dependents. An employer-funded arrangement used to reimburse employees for out-of-pocket qualified medical expenses. An employer-established and optional tax-advantaged account funded by the employee to pay for qualified medical expenses with pre-taxed dollars.
Who can open the account? The employee or employer as long as the employee is enrolled in an HSA-compatible health plan. The employer. The employer.
Who can contribute? Employers, employee/account holder, or any third party, IF the employee has a HSA-compatible health plan. The employer. The employee.
Who owns the account? The employee/account holder. The employer. The employee, but unused account balances revert back to the employer at the end of the plan year.
Is there an annual contribution limit? In 2013, limits are $3,250 and $6,450, respectively. See HSA limits per applicable year. Yes, as determined by the employer’s plan design. Yes, as determined by the employer’s plan design, and subject to maximums redefined by ACA.
Do unused funds carry over to the next year? Yes. Possibly, as determined by employer’s plan design. Possibly, if the plan document includes the rollover provision.   See your Section 125 FSA Summary Plan Description for more details.
Can you take the account funds with you if you change jobs, change health plans, or retire? Yes. No. Section 125 FSA plans are a COBRA eligible benefit.   Therefore, an employee may opt to take COBRA for the unused benefits for the duration allowed.
Can you use the account for retirement income? Yes, after age 65, you can withdraw funds for any reason with no penalty. Although, if not used for qualified medical expenses, withdrawals will be taxed as income and an excise tax will be applied. No. No.
Is the account tax advantaged? Yes, account holders contribute tax-free, any interest or investment gains are tax-free, and when used for qualified expense, you withdrawals are tax-free. No. Yes, employees’ contributions are made through pre-taxed payroll deductions.
Can the account earn interest? Yes, and after the account balance reaches a minimum balance requirement (typically $2,000), you can invest in funds available with your HSA third-party administrator and any gains are also tax-free. No. No.
Can the account reduce the out-of-pocket health care expenses of the account holder? Yes. Yes. Yes.

Additional Information Resource:

ACA impact on health reimbursement arrangements (HRAs)

 

If you have any questions or would like to further explore HSA, HRA, and/or FSA options for your company, please contact MNJ Insurance Solutions at (714) 716-4303.

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

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