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HSA, FSA, HRA: What’s the difference?

Key takeaways:

 

  • You can use HSAs, FSAs and HRAs for eligible medical expenses.

  • An HSA is portable. That means you can take it with you if you leave your job. You can’t do the same with an FSA or an HRA.

  • Funds in an HSA can grow tax-free over time. Funds in an FSA or HRA don’t. 

 

Understanding HSAs, FSAs and HRAs

 

Health savings accounts (HSAs) and flexible spending accounts (FSAs) are two of the best ways to put money aside tax-free for health care expenses. Employer-sponsored health reimbursement accounts (HRAs) also help with medical expenses. But there are key differences between the three.

 

To open an HSA, you need a high-deductible health plan (HDHP). There's no need for one with an FSA. Anyone whose employer offers an FSA can get one. Employers can also offer HRAs to their employees to reimburse approved medical and dental expenses.

  • An HSA is yours. You own it and control the funds, even if you change jobs.

  • On the other hand, your employer owns the FSA. If you leave your job, you generally can't take the FSA with you. If you leave your job or lose your job, you may lose access to any funds left in your FSA, except in cases where you opt for COBRA to extend the benefits.

  • With an HRA, if you leave your job, unused funds stay with the employer.

  • HSA: You, your employer or anyone else can add money if you have a high deductible health plan.

  • FSA: You mainly fund it, but your employer can chip in too.

  • HRA: Only your employer puts money in.

  • HSA: You have a big advantage here. With an HSA, your money rolls over every year. And it’s always yours, even if you switch jobs.

  • FSA: Use it within the year, or you might lose it. Some plans let you carry over a small amount or give you a short extra time to use it.

  • HRA: Employers may limit the amount you’re able to roll over from year to year. The money doesn't follow if you leave the job.

  • HSA: Triple tax benefits! No taxes on the money you put in, it grows tax-free and no taxes when used for medical bills.

  • FSA: You save on taxes when you put money in. However, FSAs don’t allow funds to grow over time.

  • HRA: You don't pay taxes on what your employer contributes.

  • FSA: You can use the entire year's contributions at the start of the year.

  • HSA: You can only use what you’ve saved.

  • HRA: Because the employer owns these accounts, you can't directly withdraw funds to pay for qualified medical expenses or health coverage. You must incur the charge first and then file your claim for reimbursement.

  • HSA: Pay for many medical costs like copays, medical bills, prescriptions and other qualifying health care costs. You can also invest some of the money.

  • FSA: Covers medical bills. You get the full year's amount up front.

  • HRA: Pays for certain medical expenses set by your employer.

HSAs and FSAs have limits on how much you can contribute each year. These limits can change, so it's good to check the current limits each year.

 

You can't contribute to an HSA and a traditional FSA in the same year. But HSA holders can also use a limited purpose flexible spending account (LPFSA) for dental and vision expenses, and a dependent care FSA for childcare costs.

 

Bottom line:

 

  • Both HSAs and FSAs provide financial benefits for managing health care expenses.

  • HSAs offer more flexibility and long-term growth potential, making them a valuable tool for future financial planning. Learn about HSA options from Aetna.

  • FSAs, while more restrictive in terms of rollover and ownership, provide instant access to funds. This makes an FSA a practical choice for many employees.

 

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