Comparing an FSA, HRA and HSA Side-By-Side
Following are the key differences and similarities between the most popular flexible compensation plans available today. These great financial tools help employees fight inflation and control healthcare costs, and in many instances, reduce an employer’s healthcare spend by so much they are often referred to as the benefits that pay for themselves. A Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA), along with a Health Savings Account (HSA), are types of savings accounts that let employers and employees set aside money on a pre-tax basis to pay for qualified medical expenses. The contribution limits and features of these plans vary.
Available through employer sponsor only
Available through employer sponsor only
Employers sponsor, choose and solely fund the contribution amounts to an HRA which are tax free for both employer and employee. Employees can not put money into it. Although an HRA does not need to be tied to a health plan, employees can pair with the company’s high deductible health plan to save themselves and the company the most money.
Available regardless of employment status
HSAs must be tied to a High Deductible Health Plan. Both the employer and employee can make contributions to the plan, which are pre-taxed. If an HSA is not offered through work, then employees can sign up on their own with an HSA provider and make contributions directly, which can be declared on annual taxes.
Limits, use it or lose it; no investment options
Limits, use it or lose it; no investment options
The employer sets limits, and HRAs integrated with a group plan and ICHRAs have no contribution limits set by the IRS. HRAs do not offer investment options. If an employee does not use the contributions by the of the end of the year, the funds can be forfeited to the plan, or the employer can optionally choose to roll over unused funds.
Limits, rollover; investing allowed
Budgeting for healthcare expenses
Triple tax advantage savings
Saving for the future or a rainy day
FSA – Available through employer sponsor only
While employers must sponsor, employees choose and fund the contribution amounts to an FSA, which are deducted from their gross pay and reduce taxes for both parties. Employees can pair with the company’s regular or high deductible health plan, but it does not have to be tied to a health plan to qualify. Employers can also make contributions to the FSA.
HRA – Available through employer sponsor only
Employers sponsor, choose and solely fund the contribution amounts to a HRA which are tax free for both employer and employee. Employees can not put money into it. Although a HRA does not need to be tied to a health plan, employees can pair with the company’s high deductible health plan to save themselves and the company the most money.
HSA – Available regardless of employment status
HSAs must be tied to a High Deductible Health Plan. Both the employer and employee can make contributions to the plan, which are pre-taxed. If a HSA is not offered through work, then employees can sign up on their own with an HSA provider and make contributions directly, which can be declared on annual taxes.
FSA – Limits, use it or lose it; no investment options
While the employer sets limits, per federal regulations the maximum annual contribution limit for a Medicare FSA is $3,200 (2024) and for a Depedent Care FSA, it’s $5,000 (2024) FSAs do not offer investment options. Typically unused contributions at end of year are forfeited to the plan, however most employers include provisions in their FSA plan design to allow either additional time to spend or a rollover of unused funds.
HRA – Limits, use it or lose it; no investment options
The employer sets limits, and HRAs integrated with a group plan and ICHRAs have no contribution limits set by the IRS. HRAs do not offer investment options. If an employee does not use the contributions by the of the end of the year, the funds can be forfeited to the plan, or the employer can optionally choose to roll over unused funds.
HSA – Limits, rollover; investing allowed
The 2024 HSA annual contribution limit is $4,150 ($8,300 for a family). Funds in an HSA roll over year to year. Many HSAs offer investment options – individuals can put part or all of the contribution in the market. They cannot spend more than the funds deposited in the HSA, but they can be reimbursed later after they have grown the savings.
FSA – Budgeting for healthcare expenses
The entire annual Medical FSA contribution is available on day one, even if few, if any, deposits have been made into the account at that time. Note this does not apply to the dependent care contribution, however, a family needing needing medical services for specific conditions or illnesses, could benefit greatly from being able to cover allowable expenses and services on day one of the plan. For dependent care, the reimbursements cannot exceed the YTD cumulative deferral.
HRA – Triple tax advantage savings
Employer contributions and employee reimbursements through an HRA are not subject to federal income tax, Social Security tax, or Medicare tax, offering a triple tax advantage. This tax-free edge allows for more cost-effective healthcare spending and benefits both employers and employees.
HSA – Saving for the future or a rainy day
An HSA offers a lot of savings benefits for those who are relatively healthy and do not expect to have that many healthcare expenses. Contributions are tax free and grow interest, and they roll over. And if they have to use the funds for medical expenses, they can also withdrawal tax free. A person can always start with smaller contributions and adjust as their family grows and needs change.
