What is a health savings account
An HSA, or health savings account, is a great way to save money for medical expenses while also reducing your taxable income. Not everyone qualifies for an HSA, however. Only individuals enrolled in a high-deductible health plan are eligible for an HSA.
Employers that offer high deductible health plans also offer, and often contribute to, HSAs. Unlike HRAs, employees can also contribute to an HSA, but there are annual contribution limits that are established by the IRS each year.
How does a Health Savings Account work
With a high deductible health plan comes an increase in out-of-pocket medical expenses. This increase is a lot easier to manage when you have an HSA. A health savings account is a lot like a personal savings account, but it can only be used for qualified healthcare expenses.
There are multiple ways to fund an HSA, but most employees choose to schedule pre-tax payroll deductions, which reduces their taxable income. Although there is a maximum contribution limit, HSA funds can roll over year-to-year to allow the account to grow. This is especially beneficial as medical costs can vary each year.
HRA vs HSA
The philosophy behind both the HRAs vs HSA are the same. They allow employers to provide affordable health care coverage while offering financial support to help cover health care expenses. Additionally, HRAs and HSAs allow employees to take control over their own health care decisions. They have the flexibility to choose a plan that best fits their needs, but they are not left to figure it out on their own. Employers who implement HRAs or HSAs are also able to provide the information and resources employees need to make an informed decision for themselves and their families.
Although they share a lot of similarities, HRAs and HSAs do have some significant differences. The biggest difference is that the employer owns the HRA while the employee owns the HSA. In other words, if an employee changes or loses her job, an HRA account and any remaining funds will stay with the employer. With an HSA, the employee takes the account and all remaining funds with her.
Another difference is how the two accounts are funded. An employer funds an HRA with a set amount each year. With an HSA, anyone can contribute, including the employer, employee or even a family member of the employee,