HRA, HSA, FSA Health & FSA Limited Purpose
Comparing the tax-advantaged gap funds that help to manage the healthcare services and qualified medical expenses. Use this chart to determine which one would be most fitting to your employees and your needs.
| Compare Factor | HRA | HSA | FSA Health | FSA Limited Purpose |
|---|---|---|---|---|
| What is the term? | Health Reimbursement Arrangement | Health Savings Account | Flexible Savings Account for Medical expenses and Prescription drugs. | Flexible Savings Account for Dental & Vision expenses. | Definition |
| What is it really? | Employer’s reimbursement of employee’s healthcare expenses that include individual premiums, out-of-pocket medical expenses. | Funds contributed to manage out-of-pocket qualified medical expenses if enrolled in a designated high deductible health plan that is eligible for HSA. A COBRA employee or anyone collecting unemployment benefitscan use HSA funds to pay premium. |
Funds contributed to manage out-of-pocket qualified medical expenses; Note that employees enrolling HSA plan may not be eligible to opt FSA Health. |
Funds contributed to manage out-of-pocket qualified dental and vision expenses. (Excludes medical and prescription drug expenses) |
| What is the intent? | To support employees’actual medical expenses; promote the adoption of a healthy lifestyle program or a high deductible plan. | To fund medical expenses over a longer term with pre-tax amount | To fund medical expenses for the current year with pre-tax amount | To fund dental & vision expenses for the current year with pre-tax amount |
| Who is eligible? | All Employees as determined by the employer | Employees enrolled in a High Deductible Health Plan | All Employees per IRS definition | Employees enrolled in a HSA plan | Contribution |
| Who contributes? | Only Employer | Employee, employee’s family, Employer | Employee, Employer | Employee, Employer |
| How is it contributed? | Upon submission of expense reimbursement by the employee. If an employee never submits reimbursement within the year, employer does not occur the expense. | Pre-tax deduction through employer payroll or post-tax direct contribution to the account by the employee and spouse. Employee can contribute into the account post-tax as well. |
Pre-tax deduction through employer payroll | Pre-tax deduction through employer payroll |
| Pre-tax deduction through employer payroll | Small Business HRAs cap annual employer contributions at $4,950 for an Individual (Single) and $10,000 for Family. Some employers may contribute different amounts for different usages.(e.g. High-cost Copayment vs. Regular Out-of-pocket payments) | Individual maximum of $3,400 and Family maximum of $6,750. An $1,000 as catchup amount for 55+ aged is allowed. | A maximum contribution of $2,550 | A maximum contribution of $2,550 |
| Does employer’s contribution impact the plan premium? | Contribution by the employer to HRA and HSA may constitute a gap funding there by subsidizing the employee’s cost-sharing responsibilities (co-payments, co-insurance, deductibles etc.) This may lead to an increased utilization due to which the Carrier may increase the premium pricing. | A maximum contribution of $2,550 | A maximum contribution of $2,550 | Usage |
| What expenses can the employee use it for? | Qualified medical, dental, vision expenses as determined by IRS and employer. Some employers may limit the use for deductibles or set different amounts for different types | Qualified medical, dental, vision expenses as determined by IRS. | Qualified medical, dental, vision expenses as determined by IRS and employer. | Qualified dental and vision expenses as determined by IRS and employer. |
| Can the employee use it in the following years? | If Employer provides carry-over option. Note that the employer can control the amount that can be carried forward. | Yes, as the employee owns the account. | If the employer allows carry forward, subject to IRS limit of a maximum of $500. | If the employer allows carry forward, subject to IRS limit of a maximum of $500. |
| Can the employee cash out the amount? | NO | If you spend the cash for non-qualified medical expenses, you will have to pay taxes and 20% penalty as well. | NO | NO | Tax Benefits |
| How does it benefit the employee’s taxes? | HRA contributions by employers are tax-free benefit to employees. | Provides a triple tax advantage for pre-tax contributions. Employee’s taxable income gets reduced by the contributed amount, leading to reduction in Federal Income Tax, State Income Tax and Payroll taxes. Post-tax contributions will reduce Federal and State Income taxes. | Same as HSA tax benefits | |
| How does it benefit the employer? | Employers are not subject to Payroll taxes and Social Security taxes on the contributions they make. | Employer’s Payroll taxes are reduced as employee’s taxable income gets reduced by the contribution amount. Setup Logistics |
What is Life Insurance?
What is Life Insurance?Life insurance is a contract that you enter into to ensure that your loved ones are financially protected in the event of your death. The contract states that, upon your death, the insurance company will pay a specific amount of money to your...
What is an HRA?
What is an HRA?HRA is a Health Reimbursement Arrangement, a tax-free fund solely funded by the employer to cover employees’ medical expenses. HRAs may be offered along with other employer-provided benefits such as the FSAs or High Deductible Health Plans. Employers...
What is an HSA?
What is an HSA?HSA is a Health Savings Account, a tax-exempt account funded by the employee or the employer to cover the employee’s out-of-pocket medical expenses. HSAs must accompany a corresponding High Deductible Health Plan (HDHP). A Limited Purpose FSA to cover...
Guidance for Employees to Choose a Medical Plan
Guidance for Employers to Choose the Right Set of Medical PlansMost employers offer a choice of three or four medical plans in the employer-sponsored insurance market. Some smaller employers may offer just two plans or sometimes a single plan with no choice. These...
Guidance for Employers to Choose the Right Set of Medical Plans
Guidance for Employers to Choose the Right Set of Medical PlansPlease review the Understanding Health Insurance Costs topic prior to reviewing this material. Knowing the costs helps you make better decisions. Factors that play role in this decision process: Plan...
Understanding Health Insurance Costs
Understanding Health Insurance CostsUnderstanding the cost of healthcare may not be straightforward. The total cost incurred by an employee or a consumer has two components: One is a monthly premium that is pre-determined at the time of enrolling in a health plan. It...