What are the differences between an HSA, HRA and an FSA?
Who is this for?
If you’re interested in health spending accounts, this information can help you learn the three kinds and what makes each one different.
Health spending accounts are used to get tax savings on money put away for your medical expenses. They’re part of what’s called consumer-directed health care.
“Consumer directed” means you manage more of the money you spend—and save—on health care costs.
There are three kinds of accounts:
- Health savings account, or HSA
- Health reimbursement arrangement, or HRA
- Flexible spending account, or FSA
What do they have in common? Money deposited in these accounts goes in tax free, and goes out tax free or tax-deductible to pay medical expenses.
What makes them different? The kind of insurance plan they work with, who owns the account, who controls it and who can put money into it.
Health savings account
Health savings accounts are similar to a 401(k) retirement account for medical expenses. You can only have an HSA if you enroll in a high-deductible insurance plan. Here are other things you should know about an HSA:
- You own the account.
- Anyone can put money into the account.
- Money taken out of your paycheck by your employer for the account isn’t taxed.
- Money put into the account that’s already been taxed (for example, money that was a gift), is tax deductible.
- Money in the account can roll over from year to year.
- You can invest the money.
Health reimbursement arrangement
A health reimbursement arrangement is a benefit set up by your employer. It’s a fund that pays for medical expenses not covered by your health plan, such as deductibles, coinsurances or both. Other features of an HRA:
- The fund is owned by your employer.
- Your employer decides which expenses are covered by the HRA.
- Money given to you for medical expenses is tax deductible for your employer.
- You don’t have to pay taxes on money you get from an HRA used for qualified medical expenses.
- Your employer decides whether leftover money in your HRA can roll over to the next year.
- The money in an HRA can’t be invested.
Flexible spending account
An FSA is set up by your employer. They own the account, but you get to decide what medical expenses to pay from your FSA. What makes it flexible? It works with any employer-sponsored health plan. Here are more facts about an FSA.
- Only you and your employer can put money into the account.
- You can only deposit money in your FSA that’s been taken out of your paycheck by your employer. That money isn’t taxed.
- Any money left in the account at the end of the year goes back to your employer.
- You can’t invest the money.