HRA vs. HSA: Which Is Best for You?

They may seem synonymous but these two types of health care payment plans help you save in different ways.

Written by Kat Tretina / April 21, 2022

Quick Bites

  • Health Reimbursement Arrangements (HRAs) are offered by some employers to reimburse workers for eligible medical expenses.
  • Health Savings Accounts (HSAs) are owned by you and funded with pre-tax contributions.
  • These accounts can be used to pay for premiums, deductibles and qualifying health expenses.

From high copayments every time you see the doctor to expensive over-the-counter drugs, health care costs can leave a major dent in your budget.

One valuable way to save is to take advantage of tax-advantaged options, including two that sound pretty similar: Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs).

But HSAs and HRAs differ in important ways. Here’s what to know about each, and how to take advantage of them to help you save money.

Inside this article

  1. What’s an HRA?
  2. Eligible expenses under an HRA
  3. Who can take advantage of an HRA
  4. What’s an HSA?
  5. Who can take advantage of an HSA
  6. Eligible expenses under an HSA
  7. Can I have an HRA and an HSA?
  8. HRA vs. HSA: Which to choose?

What is an HRA?

HRAs or Health Reimbursement Arrangements are a perk that some employers give to their workers as part of the company benefits package. You can withdraw money from an HRA tax-free to pay for eligible medical expenses, up to a specific amount per year. An HRA doesn’t have to be paired with a high-deductible health plan, as HSAs do (more on that later).[1]

An HRA might sound similar to a Flexible Spending Account (FSA)—another employee benefit that helps you pay for health care costs. But unlike FSAs, which are funded at least partially by the employees, HRAs are 100% funded by your employer. You don’t contribute a dime. Typically, you can roll over unused HRA funds into future years, though some employers may not allow that. Check your plan rules.[2]

You typically have to pay for eligible medical expenses upfront and then submit them for reimbursement from your HSA, though some employers issue HRA debit cards that allow you to pay the doctor or health care provider with HRA funds on the spot.

While other types of tax-advantaged health accounts limit how much can be contributed every year, HRAs are different in that regard, too. “For HRAs, there is no defined contribution limit,” says Tom Torre, co-founder and CEO of Bend Financial, a Boston-based company that provides HSAs for employers and consumers. “Rather, the limit is chosen and set by the employer offering the HRA.”

Eligible expenses under an HRA

Your employer determines which health care expenses qualify for reimbursement from an HRA. Common eligible expenses include:

  • Health insurance premiums

  • Payments toward your policy deductible

  • Copays

  • Dental care

  • Vision care, including eye exams and glasses

  • Over-the-counter medications

  • Prescription medications

“For an HRA, it’s important to take the time to understand exactly how your employer has the HRA set up,” says Torre. “Then, based on that, take advantage of the dollars your employer contributes in the time frame required to not miss out on any ‘free’ money.”

Who can take advantage of an HRA?

To qualify for an HRA, you must work for an employer that offers an HRA as part of its benefits package. You can usually enroll only during your employer’s health insurance open enrollment period, unless you have a qualifying life event and are eligible for a special enrollment period.[3]

Some employers offer HRAs in addition to an employer-sponsored health insurance plan, but some smaller companies may have HRAs in lieu of health insurance. You can use your HRA to purchase coverage through the Health Insurance Marketplace or other sources.

What happens if you leave the company? If you are no longer employed by the company managing your HRA, you typically forfeit any unused funds.[4]

What is a health savings account (HSA)?

An HSA allows you to save money on a pre-tax basis to pay for a wide range of qualifying medical expenses, saving you money on health care costs. While an HRA is employer-funded and run by your company, you own your HSA, even if you get the account through work. It’s your money, and while your employer may add to your HSA, it’s primarily funded by you.

For 2022, you can contribute up to $3,650 per year to an HSA for individual coverage, and up to $7,300 per year for family coverage. If you are 55 or older, you can take advantage of catch-up contributions and contribute an additional $1,000 per year.[5]

HSA funds have triple tax advantages:

  • Your contributions are made with pre-tax dollars

  • You earnings grow tax-free

  • Withdrawals are also tax-free if you use the money for qualified medical expenses

You can invest your HSA balance in stocks, bonds, exchange-traded funds (ETFs), mutual funds, savings accounts and more, giving yourself the opportunity to grow your money. You can roll over HSA funds from year to year, letting you build a cushion for an expensive medical emergency. Or, if you don’t need the cash for health care costs now, you can treat your HSA as yet another retirement savings account.[6]

Who can take advantage of an HSA?

You can contribute to an HSA only if you are enrolled in a high-deductible health plan (HDHP). For 2022, an HDHP is a plan with a deductible of $1,400 or higher for an individual, or $2,800 or higher for a family plan.[7]

What happens if you switch to a policy with a low deductible?

If you no longer have an HDHP, you can’t contribute to an HSA anymore. However, you get to keep your HSA and the money in it.

“With an HSA, you own the account, and you keep the account even if you leave your job, change health care plans or even retire,” says Torre. “Your HSA funds remain yours indefinitely to use for any qualified expenses.”

Eligible expenses under an HSA

You can use the funds in your HSA to pay for your deductible, copayments, prescription medications, dental and vision costs, elective services like Lasik surgery, medical equipment and devices, over-the-counter drugs and far more. Unlike with an HRA, you can’t use HSA funds to cover your regular health insurance premiums, but you can pay Cobra, Medicare and long-term-care insurance premiums with HSA funds.

Can I have both an HRA and an HSA?

As if an HRA and an HSA aren’t complex enough on their own, how about having both of them?

“The short answer is yes—you can have an HRA and HSA at the same time,” says Torre. “However, it’s critical to note that the IRS enforces strict rules for individuals contributing to an HSA and also receiving HRA reimbursements. For those participating in an HDHP and utilizing an HSA, the IRS has created specific HRA types that are available to complement the HSA.”

Those include:

Limited-purpose HRAs

Through a limited-purpose HRA, employers reimburse employees for expenses related to dental, vision and preventive care.

Post-deductible HRAs

With this option, the employer reimburses employees for qualifying expenses only after they reach the minimum allowable deductible for an HDHP. For 2022, that amount is $1,400.

Retirement HRAs

With this arrangement, the employer can contribute to the HRA, but the employee cannot access it until they retire.[8]

HRA vs. HSA: Which one should you choose?

It is possible to have access to both an HRA and a HSA. Or, you may have to choose one option. If that’s the case, think about your health expenses and past expenses.

Although they share some similarities, HRAs and HSAs are very different tools. HRAs are offered by some employers and reimburse you for qualifying expenses, while an HSA is owned by you and funded by your own pre-tax contributions. Understanding how these accounts work and, if they’re available to you, using them to cover some of your medical costs can help make your health care expenses more affordable.

Article Sources
  1. “HRA and HSA Comparison Chart,” Cigna, https://www.cigna.com/individuals-families/plans-services/plans-through-employer/account-based/hra-vs-hsa.
  2. “Health Reimbursement Accounts,” Healthcare.gov, https://www.healthcare.gov/glossary/health-reimbursement-account-hra.
  3. “What Are Health Reimbursement Arrangements?” UnitedHealthcare, https://www.uhc.com/understanding-health-insurance/understanding-health-insurance-costs/health-reimbursement-accounts.
  4. “Health Care Consumerism: HSAs and HRAs,” Society for Human Resource Management, https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/hrasandhsasanoverview.aspx.
  5. “Health Savings Accounts,” Healthcare.gov, https://www.healthcare.gov/glossary/health-savings-account-hsa.
  6. “Invest Your HSA Your Way,” Fidelity, https://www.fidelity.com/go/hsa/investing-hsa-your-way.
  7. “High Deductible Health Plans,” Healthcare.gov, https://www.healthcare.gov/high-deductible-health-plan.
  8. “Health Savings Accounts — Interaction With Other Health Arrangements,” IRS, https://www.irs.gov/pub/irs-drop/rr-04-45.pdf.

About the Author

Kat Tretina

Kat Tretina

Kat is dedicated to teaching people how to pay down debt, boost their incomes and reduce financial stress. Her work has been published by Reader's Digest, The Huffington Post, Forbes Advisor and more.

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