Understanding Different Types of Health Savings Accounts

Comparison and Qualification Guidelines for HSAs, FSAs, & HRAs

Patient discussing with nurse if it is possible to have an HSA without insurance
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A health savings account usually supplements your current insurance coverage. Health savings accounts are designed to pay for or reimburse you for medical expenses that your health insurance coverage typically does not pay for.

Depending on the plan you choose (or that is provided for you), the money in all types of HSAs are deposited either by you, an employer, or both before it is taxed. This means that your out-of-pocket medical costs are tax-free to a certain amount. With some plans, you can earn interest on your money while it is waiting to be used.

Health Savings Account Options–HSA, FSA, and HRA

There are three options available in the consumer-driven health care area of health savings accounts to supplement health insurance coverage. These options include:

  • HSA (Health Savings Account)
  • FSA (Flexible Spending Account/Arrangement)
  • HRA (Health Reimbursement Arrangement)

The HSA and HRA are part of health insurance plans and come with them. You are only eligible for HSA if you are enrolled in a High Deductible Health Plan (HDHP), where your deductibles are higher than in traditional plans.

HDHPs are defined as those plans that have a minimum deductible of $1,350 for individuals or $2,700 for a family. The total out-of-pocket expenses for an HDHP are limited to $6,900 for individuals or $13,800 for families (for in-network services).

FSAs cannot be used with a health plan from the health marketplace, but it can be used with a plan from an employer.

How an HSA Works

You and/or your employer contribute money into your HSA account (the account is set-up through your employer as a benefit or you set up an account through an insurance company or an IRS approved trustee). The account acts as a bank account except the money is placed there pre-tax, earns interest similar to a savings account, and will not be taxed upon withdrawal for qualified medical expenses.

Interest rates are lower in an HSA than in a savings account; however, because the money in an HSA was not and will not be taxed, it has the potential to earn more than it would in a savings account.

Your plan may provide a debit card to provide you access to your HSA should you need it (e.g., to pay for a prescription, dental check-up, or co-pay). Your plan may require you to send a copy of the receipt to receive a reimbursement if you are eligible for one.

Flexible Spending Account

FSAs are used in conjunction with an employer-established health plan. These plans allow you to contribute tax-free through a payroll deduction to an account, which is then used to reimburse you for qualified medical expenses. Employers are allowed to contribute to the plan as well.

FSAs are set up by your employer, and both you and your employer may contribute funds into the account, pre-tax. FSAs do have a limited amount that can be stored—$2,650 per year per employer. Married people can each have $2,650 in their FSA.

Any unused funds that you do not use in a given year are not available the next year; with an FSA it is important to plan how much money you need to contribute ahead of time. This means that any money left over in an FSA will be lost.

You use your money anytime for qualified medical expenses. Insurance premiums are not considered to be qualified medical expenses, but prescription medications and over the counter medicines (with a prescription) are.

One disadvantage of the FSA is that once you leave your employer, you do not keep the FSA or the money in it. The employer is also not required to keep the FSA active—so if you leave and are re-hired, your account starts over again.

Health Reimbursement Arrangement

HRAs are available to anyone who has an employer that provides one. HRAs are accounts that an employer sets up for their employees to help them pay for out-of-pocket health-related expenses. This type of account is designed for an employer to help offset health care costs for their employees, up to a fixed amount per year.

Contributions for an HRA are made by the employer only and have no limit on the amount that may be contributed. Employers are not allowed to deduct from employees' wages and salaries for the HRA. This plan is used to reimburse employees for qualified medical expenses.

The HRA is an employer established plan, meaning that you cannot have an HRA through a marketplace plan or a private provider.

It is up to your employer if an HRA plan will roll unused funds into the following period. The money is allowed to stay in your plan for reimbursement use, but employers are not allowed to give their employees any remaining balances.