What is the difference between an HSA and HRA? |

Confused between HSA and HRA?

Consumer-directed health plans (CDHPs) typically combine a health insurance plan with a tax-advantaged account that enrollees can use to pay for medical expenses—most commonly a health savings account (HSA) or health reimbursement arrangement (HRA).

Enrollees in CDHPs, whether linked to an HSA or HRA, must keep track of funds in their accounts. If the account’s funds are exhausted before the deductible is met in a given year, enrollees are responsible for paying for the difference out of pocket until they meet the plan deductible. After an enrollee meets the deductible, the plan operates much like a traditional preferred-provider organization (PPO) plan. That is, generally the plan pays for most of the cost of covered services and the enrollee contributes a cost-sharing amount—which varies by plan—until meeting the maximum out-of-pocket spending limit, at which point the plan pays 100 percent of the cost of covered services.

HSAs vs. HRAs: Requirements and Features

Health Savings Accounts (HSAs)	Health Reimbursement Arrangements (HRAs)
Plan Design:
• HSAs must be linked to a high-deductible health plan (HDHP). For 2013 and 2014, HSA-linked HDHPs must have an individual deductible of $1,250 or higher, or a family deductible of $2,500 or higher. For 2015, the individual deductible rises to $1,300 and the family deductible to $2,600. • HSAs have maximum total out-of-pocket expenses. For 2013, these maximums were $6,250 for single coverage and $12,500 for family coverage. For 2014, the maximums increased to $6,350 for single coverage and $12,700 for family coverage. For 2015, these maximums will be $6,450 for single coverage and $12,900 for family coverage. • HSAs cannot be used to pay health plan premiums, except for qualified long-term care insurance, health insurance while receiving federal or state unemployment compensation, COBRA plans and Medicare premiums.	• HRAs are often coupled with an HDHP but there is no requirement that they must be. • There are no government-set out-of-pocket maximum limits specifically for plans linked to HRAs. • HRAs can be used to reimburse health insurance premiums, but there are limits on using nonintegrated HRAs to fund individual coverage through public health exchanges.
Unspent Funds:
• HSA funds are “real dollars” in an employee-owned account. Unspent funds are rolled over to the next year, reducing or eliminating the enrollee’s share of the deductible in subsequent years. • HSA account-holders can invest funds in interest-bearing accounts or, if the administering firm allows it, mutual funds.	• An HRA is a notional account controlled by the employer. Most HRAs allow the attributed “funds” to accumulate from year to year; however, this is not required and is at the employer’s discretion. • Most HRAs do not pay interest to participants, nor do they allow participant-directed investments.
Funding:
• HSAs may be funded by employees, by employers, or by both. For 2013, the HSA contribution limits from all sources were $3,250 for single coverage and $6,450 for family coverage (with an additional $1,000 catch-up contribution for account holders age 55 or older). For 2014, contributions increased to $3,300 for single coverage and $6,550 for family coverage (with no increase in the catch-up contribution). For 2015, contributions will increase to $3,350 for single coverage and $6,650 for family coverage (again, with no increase for catch-up contributions). • Employer contributions are not taxable to the employee. Employee contributions can be made with pre-tax dollars through a Section 125 salary-reduction cafeteria plan.	• HRAs must be funded solely by employers. Employer contributions are not taxable to the employee.
Portability
• HSAs are employee owned and portable on termination of employment. Prior to termination, HSA funds can be transferred from one HSA administrator (including the default firm selected by an employer) to another HSA administrator at the account-holder’s discretion.	• A HRA’s funds generally revert to the employer on termination of employment.• Employers can offer post-retirement HRAs as a retiree-only medical benefit.