In 2023, health spending increased by 7.5%. Most workers in the United States, 96%, believe a job should offer health insurance. There are several health benefits you can provide, including HRAs and HSAs. What’s the difference between an HRA vs. HSA?
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HRA vs. HSA: What’s the difference?
HSAs (health savings accounts) and HRAs (health reimbursement arrangements) are popular health benefits you may offer your employees.
So what’s the difference?
- HSA (health savings account): An HSA is a plan that lets employees set aside pre-tax dollars to manage healthcare expenses, like copays, medicine, and medical equipment.
- HRA (health reimbursement arrangement): An HRA is a plan that reimburses employees for qualified medical expenses.
1. Health savings account
An HSA is an account employees can use to pay for qualifying medical expenses. Both employees and employers can contribute to an employee’s HSA.
According to the BLS, 39% of all private industry workers have access to HSAs.
HSAs work alongside high deductible health plans (HDHPs). Employees can only use an HSA if they have an HDHP. There are annual contribution limits that determine how much employees can add to their accounts.
There are several pros and cons of HSAs to consider before offering this type of health benefit:
| Pros of HSAs | Cons of HSAs |
|---|---|
| HSAs cover qualifying medical expenses like copays, prescribed medicine, and medical equipment | HSAs are only available with HDHPs |
| Employees have full control of their accounts, even after leaving employment | There is an annual contribution limit |
| Contributions and qualified withdrawals are tax-free | Employees will be taxed if they use HSA funds for non-qualifying expenses |
2. Health reimbursement arrangement
An HRA reimburses employees for qualifying medical expenses. Only employers contribute to an employee’s HRA.
There are several types of HRAs, including:
- Qualified small employer HRA (QSEHRA): A QSEHRA plan is an HRA that employers with fewer than 50 full-time equivalent employees can offer so employees can obtain their own health plans.
- Individual coverage HRA (ICHRA): An ICHRA is an HRA that employers can offer so employees can obtain their own health plans.
- Excepted benefit HRA (EBHRA): An excepted benefits plan is a supplemental insurance option employers can offer if they also offer a traditional health insurance plan.
Depending on the HRA type, you can offer HRAs instead of group health insurance plans or in conjunction with them.
Employers determine contribution amounts, eligible expenses, and reimbursement processes. Reimbursements from HRAs are tax-free.
There are several pros and cons of HRAs to consider before offering this type of health benefit:
| Pros of HRAs | Cons of HRAs |
|---|---|
| HRAs cover qualifying medical expenses like employee-obtained health plans, copays, and deductibles | Managing reimbursements can become time-consuming |
| Employer contributions are tax-deductible and reimbursements are tax-free | Employees don’t have control over the accounts, so they typically lost them when leaving |
| Employers control the account, and the costs | Employees can’t contribute to the accounts |
HSA vs. HRA [Chart]
HRAs and HSAs offer tax advantages and aim to reduce healthcare costs. But which is the best option for your business?
| HSA: Health Savings Account | HRA: Health Reimbursement Arrangement | |
|---|---|---|
| Definition | An employee-owned account used for paying medical expenses. | An employer-owned account that reimburses employees for medical expenses. |
| Who Funds It? | Both employees and employers can contribute | Only employers can contribute |
| Who Owns the Account? | Employees | Employers |
| Who Can Participate? | Employees who have an HDHP | Any employee whose employer offers it |
| What Are the Contribution Limits for 2025? | $4,300 (self-only coverage under an HDHP) $8,550 (family coverage under an HDHP) Additional $1,000 if the employee is 55 years or older | Limit varies by HRA type: -QSEHRA: $6,350 (single) or $12,800 (family) -ICHRA: No limits -EBHRA: $2,150 |
| Can Employees Roll Over the Account? | Yes, funds roll over indefinitely | Maybe; employers decide if funds roll over |
Which is better: HSA or HRA?
Choosing between an HRA and HSA can be a difficult decision. Your decision ultimately depends on your business’s unique circumstances, goals, and employee needs.
The best plan for your business, and your team, depends on several factors, including:
- Time management: Unlike HSAs, HRAs typically come with a more significant time investment because you have to receive and review reimbursement requests and distribute funds.
- Budget: The average premium per employee enrolled in health insurance is $7,590 (single). HRAs give you more control over how much your business spends on healthcare costs.
- Employee preferences: What do your employees prefer? You can send out a questionnaire to help you determine the benefits you offer each year.
Both HRAs and HSAs can help your team manage rising healthcare costs and receive tax benefits.
This is not intended as legal advice; for more information, please click here.
