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An Easy-to-Understand Explanation of the Differences Between HSA, HRA, and FSA

July 13, 2021, by New City Insurance

accounts finding out the Differences Between HSA, HRA, and FSAChoosing an employer-sponsored benefit account for employees can be a difficult task. Today, employers have access to several main types of savings accounts, including HSAs, HRAs and FSAs. These types of accounts can help pay for qualified health care expenses for employees and their dependents. They can also be used to save on taxes.

What Is A Health Savings Account?

A health savings account can help workers pay for certain medical, dental, vision and prescription expenses. Before making a decision to use a health care expense account, take the time to compare and contrast these three types of benefit accounts.

Health Savings Account (HSA)

A health savings account is similar to a personal savings account in which the account holder owns and controls the money in the account. However, the funds can also be used to pay for qualified health care expenses. To be eligible for an HSA, a person must first enroll in a High-Deductible Health Plan (HDHP).

An HSA is often recommended to people with HDHPs to cover out-of-pocket costs. There are several benefits to opening a health savings account, including tax perks. Contributions made to an HSA are not usually subject to federal income tax, allowing the money in the account to grow tax-free.

At the end of the year, any leftover funds in an HSA roll over to the next year and remain available for medical expenses in the next year. Withdrawals from an HSA for approved medical services are not subject to federal taxes, and in many cases, state taxes. Contributions made to an account using after-tax dollars can be deducted from the gross income of the account holder’s tax return which can help reduce their tax bill.

Contributions to a health savings account can come from an employee, relative, employer, or anyone else that would like to contribute. However, there are contribution limits set by the IRS on an annual basis. In 2021, the HSA contribution limit is $3,600 for an individual and $7,200 for a family, and the maximum out-of-pocket is capped at $7,000.

Health Reimbursement Arrangement (HRA)

A health reimbursement arrangement is a type of employer-funded benefit plan used to reimburse employees for qualifying medical expenses. Employers can claim tax deductions for reimbursements made through these plans, and any reimbursement funds are given to employees tax-free with an HRA. Unlike an HSA that can be funded by both employers and employees, only employers fund HRAs.

employee looking up the Differences Between HSA, HRA, and FSAHRAs are tax-advantaged accounts that are designed to reimburse employees for any out-of-pocket medical expenses and sometimes personal health insurance premiums.

An HRA enables employees to pay for various medical expenses that may not be covered by insurance. It is also an excellent option for small businesses that cannot afford their employees’ group health insurance.

All HRAs are different, but most feature a similar structure. Businesses decide how much money they want to offer employees every month, which represents the max amount the business is willing to reimburse employees. Workers can then make health-related purchases and submit documentation of these expenses. The business then reviews the documents and reimburses employees.

Flexible Spending Account (FSA)

A flexible spending account is a type of savings account that offers account holders unique tax benefits. Also, referred to as a flexible spending arrangement, an FSA is either set up by an employer or employee and allows either party to contribute to the account. Any distributions from an FSA must be used to reimburse the employee for qualified medical or dental expenses.

FSAs allow account holders to pay out-of-pocket medical expenses using tax-free dollars. Eligible expenses include insurance deductibles and copayments, insulin, medical devices and qualified prescription drugs. Employees have control over how much money they would like to contribute to an FSA up to the limit set by the employer.

If there is any money left in the account at the end of the year, employees have two options. First, an employee can choose to get an additional 2.5 months to spend the leftover funds. Another option includes carrying over up to $500 to spend in the next year on qualified expenses. The IRS also limits how much can be contributed to an FSA account each year. In 2021, the annual contribution limit per employee is $2,750.

Choosing Between an HSA, HRA and FSA

concept for Differences Between HSA, HRA, and FSAThere are several similarities between an HSA, HRA and FSA. All three types of savings accounts are sponsored by employers and aim to offset the high cost of medical care. These accounts also have tax-advantaged contributions and enable account holders to take more control over their personal healthcare needs.

When choosing an employer-sponsored health savings account for employees, it is important to consider which type of account would offer the most benefits to staff and also fits into the organization’s budget. To learn more about the differences between an HSA, HRA and FSA, or to speak with an insurance expert about acquiring a savings account for your business, contact New City Insurance.

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Carol Zhang
Carol Zhang
04:29 06 Mar 22
As a rapidly expanding national media organization, the employee benefits strategy and administration that New City has provided us during our growth has been invaluable. They have been proactive about informing us of the different benefit strategies available to us as we grow as well as managing the additional compliance laws and reporting requirements at each stage of our growth.
Claudia Villalobos
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New City Insurance made navigating through all the health insurances super EASY. Their documents are highly informative, professional, and easy to work with. Thank you for making the process of choosing a health plan so simple. You guys are THE BEST!
Philippe Salas
Philippe Salas
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I never expected to have a good time talking to an insurance salesman, but let me tell you Brendan was quite the treat. He was very helpful explaining the options and has a wonderful sense of humor. I hope to speak with him every time I call.
Jennifer Polito
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Super easy enrollment process. Fast and friendly customer service. If you are looking for an insurance company that is there for you every step of the way I highly recommend New City Insurance.
Rocky Salas
Rocky Salas
23:46 07 Jan 22
So friendly, I hope to speak to him again in all my future insurance needs.
Rocky Salas
Rocky Salas
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So friendly and soft spoken. I hope to speak to him again in all my future insurance needs.
Jose Brena
Jose Brena
13:20 06 Jan 22
Eric Calciano has been extremely helpful in finding and selecting the right insurance coverage for our company. With many options out there Eric assisted us on getting a low cost provider saving more than 20% than from our competitors and providing excellent coverage for our employees.
Anastasia Beaverhousen
Anastasia Beaverhousen
17:05 28 Dec 21
Signing up for insurance was quick and easy. Felicity Sundsboe
SFCC
SFCC
22:08 29 Nov 21
Jeff Stoltey and his team provide excellent customer service. Jeff has always provided my company SFCC with straightforward options. I went to a larger insurance company only to RUN BACK to Jeff at New City Insurance. I recommend them to anyone needing insurance without hesitation.
Kevin Luby
Kevin Luby
19:13 22 Oct 21
Quick, easy & informative. We were able to secure quality insurance for our small business on a tight deadline. Thanks for the help New City.
Theresa Ruybol
Theresa Ruybol
19:30 01 Jul 21
Eric was so great with us. He was very patient and kind as we are a newer smaller organization who is growing rapidly. With that said, we had made our inquiry, he had great rapid response and mostly had to wait on me. Any request that we made and/or questions we had, he was great answering and helping us understand. Then when we were ready for all documents and to move forward, Brendan helped with getting that together and the two of them worked their magic on New City's end to notify me of what was needed, assist me in that process and confirming that all was complete and approved for the coverage. I just want to say thank you all again so much, as insurance has always been confusing to me, and you all made that process go a lot smoother.Thank you
Andrea Ordendorff
Andrea Ordendorff
21:06 07 May 21
I've been working with both Clayton and Brendan for well over a year. As the purchase of our dental practice was delayed well over 14 months they both patiently supported me and continued to make themselves available. When we were officially ready to sign up they made the whole process seamless and super easy. This team is highly knowledgeable, professional, supportive, and efficient! I can't thank them enough for everything they've done.
T W
T W
22:32 30 Aug 20
I love New City Insurance. I never had a good experience dealing with insurance brokers until I started working with Brendan. He’s awesome! He is patient with me and takes the time to answer all my questions. I’m very grateful for all his help and hard work!
Mary Jane Deyette
Mary Jane Deyette
00:57 11 May 20
Jeff Stoltey is so awesome...even thru my company had only two employees, he took the time each year to research and find the best plan for us. The only reason I am leaving New City Insurance is because we no longer have any employees. Thank you Jeff
Alma Ortiz
Alma Ortiz
22:25 23 Feb 20
Brendan was awesome! I couldn't figure out how to pick my plan and he returned my call on a weekend to help me. Outstansing service!
jessica kavanagh
jessica kavanagh
19:53 13 Feb 20
Brendan was so helpful I definitely recommend him if you’re in need of good help and getting it done promptly. Thankyou so much again.
Tricia DeYoung
Tricia DeYoung
19:49 13 Feb 20
I was very thankful I inquired about this info. with Brendan. He was very helpful so I understand the benefits available much better now. Thank you Brendan.
B Bayer
B Bayer
17:43 24 Sep 19
NCI handled almost everything from start to finish. Clayton and Brendan made the plans easy to understand and walked me through the application process. They got me my ID numbers before my cards arrived so that I could keep an appointment I had already scheduled. My last broker wouldn't have done that. 5 stars!
Jessica Lehr
Jessica Lehr
03:36 07 Jun 19
Our staff was interested in a health plan, but we didn't know how beneficial a solid employee benefits package would be for our business to expand. We'd lose prospective employees because they had more options for their medical insurance which was sometimes more valuable than more pay. The New City team was amazing and gave us as many affordable options as possible so that everyone had their needs met.
Mike McClay
Mike McClay
19:36 03 May 19
My employer uses New City as their insurance broker, and I'm always amazed when I call in for assistance by how knowledgeable and attentive their staff is with my requests. Their online benefits platform makes selecting insurance plans pretty darn easy. I would highly recommend their services.
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