How to choose an HSA, FSA or HRA for your employees
Those acronyms refer to accounts or arrangements you can use to pay for medical expenses. There are three kinds: a health savings account (HSA), health reimbursement arrangement (HRA) and flexible spending account (FSA).
These accounts are part of what’s called consumer-directed health care. Because of that, they’re all designed to have certain advantages, for both employer and employee:
- More control over your health care costs
- Tax savings—money that goes in and out of these accounts is either tax exempt or tax deductible
- Lower health care costs—consumer-directed health insurance plans are usually less expensive
Which one is best for you and your employees? We’ll try to help you decide.
Health savings account (HSA)
What it is: Think of an HSA as a 401(k) retirement account for medical expenses. The employee owns the account and chooses what health care costs they want to pay from it.
What you need to know: An HSA must be paired with a high-deductible insurance plan. So if you want your employees to have an HSA, you have to offer a compatible plan, like Simply Blue℠ or Blue Care Network HMO HSA℠.
Why it may be a good choice: An HSA offers a lot of tax savings and investment choices to employees, so it’s an attractive option. It also requires the least amount of management by the employer.
Health reimbursement arrangement (HRA)
What it is: An HRA is a fund employers set up for employees that pays for medical expenses not covered by their health insurance plan, like deductibles and coinsurance.
What you need to know: Only an employer can fund an HRA, decide how much to put in it and what health care costs it can be used for. HRAs require a higher level of administration. Most businesses have their HRA handled by a third party.
Why it may be a good choice: If you like to budget for health care costs, an HRA might be right for you. You can decide in advance how much each employee will get in their fund. Employees can take advantage of payouts from an HRA no matter what kind of health insurance coverage they have.
Flexible spending account (FSA)
What it is: An FSA is like a simpler version of an HSA and an HRA combined. It’s flexible because it works with both traditional and high-deductible plans, and employees decide which medical expenses to pay with their FSA.
What you need to know: Although employers set up FSAs for employees and own the account, they’re less complicated than an HRA to manage. Employees put money into an FSA through payroll deduction only. At the end of the year, unused funds go back to the employer.
Why it may be a good choice: Just want the basic benefits of consumer-directed health care—lower health insurance costs, tax savings and more say in spending on medical expenses? You and your employees might want to consider an FSA.