Health savings accounts (HSAs), health reimbursement arrangements (HRAs), and flexible spending accounts (FSAs) can all help you pay for qualified expenses related to your health care, which frequently include things like deductibles, copays/coinsurance, and prescription costs. However, there are some important differences you should consider when determining which account is the best fit for your needs.
Some things to consider include:
Health Savings Account (HSA) | Health Reimbursement Arrangement (HRA) | Flexible Spending Account (FSA) | |
| Account Ownership | Employee/ Individual | Employer (held in employee’s name) | Employer (held in employee’s name) |
| Deposits Made By | Employer, employee or both | Employer | Employer, employee or both |
| Separate Account | Required; IRA-type account | Not required; can be paid from employer assets | Not required; can be paid from employer assets |
| Expenses Covered | Medical, dental, vision, prescription and some over-the-counter expenses. COBRA, retiree medical insurance premiums, LTC premiums or expense – Reference: IRC § 213(d) | Medical, dental, vision, prescription and some over-the-counter expenses. Post-tax insurance premiums. – Reference: IRC § 213(d) | Medical, dental, vision, prescription and some over-the-counter expenses – Reference: IRC § 213(d) |
| Accompanying Plan Requirements | Must be covered by qualified HDHP and not covered by any plan that covers medical expenses under the deductible HDHP Minimum Deductible: Maximum Out of Pocket: | Generally, must be integrated with group medical plan meeting health care reform requirements | None |
| Contribution Limits | 2020: $3,550 self-only; $7,100 family; Catch-up: $1,000 2019: $3,500 self-only; $7,000 family; Catch-up: $1,000 | None | 2020: Not announced 2019: $2,700 per plan year The limit is per person. Employers may elect a lower contribution limit. |
| Portability | Full portability required | Portability allowed at employer’s discretion | None |
| Rollover | Full rollover required | Rollover allowed at employer’s discretion | $500 rollover allowed at employer’s discretion |
| Funds Availability | As deposits are credited | As deposits are credited; may be credited in a lump sum | Full annual election available on first day of coverage (uniform coverage) |
| Claim Adjudication | Not allowed; though participants must retain receipts | Required | Required |
| Compatibility with Other Savings Accounts | May be paired with HRA/ FSA if limited to amounts over deductible, or to dental/ vision only; may be paired with DCAP, PRA | May be paired with FSA, DCAP, PRA. IF paired with an HSA, must be limited to amounts over the deductible or to dental/vision only | May be paired with HRA, DCAP, PRA. If paired with an HSA, must be limited to amounts over the deductible or to dental/vision only |
| Employer Contributions | Can be made on behalf of current employees (account extends to spouse and dependents) | Can be made on behalf of current, former employees, their spouses and dependents, and spouses and dependents of deceased employees | Can be made on behalf of current employees (account extends to spouse and dependents) |
| ERISA Plan | Generally no | Yes | Yes |
| COBRA | Does not apply | Applies | Applies |
| Retirees | Can be covered | Can be covered | Cannot be covered |
| Debit Card Usage | Yes | Yes | Yes |
| Contributions for Medicare Participants | Contributions cannot be made once an individual has Medicare coverage | No limits on contributions | No limits on contributions |
| Usage for Ineligible Expenses | Allowed. Amounts included in income; subject to 20% penalty unless after account beneficiary’s death, disability or attaining age 65 | Not allowed | Not allowed |
| Distributions for Expenses Incurred After Individual is No Longer Eligible | Can be made | Can be made at employer’s discretion, or if COBRA is elected | Can be made if COBRA is elected |
| Coverage for Sole Proprietors, Partners and 2% or More S-corp Owners | Yes, but not eligible to participate in cafeteria plan used to fund HSA in the workplace | Cannot be covered | Cannot be covered |
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