Welcome back to another post in our series called “Benefits Chalk Talk.” This series is designed to help people and employers better understand all of the tools that are available when funding their healthcare. Our biggest goal is to help our clients and potential clients put the things in place that make the most sense.
This post will help you make comparisons between two very important concepts: Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs). The reason these two are so important is because they are “money smart” concepts that can help you retain funds. When utilized correctly and with the proper guidance, they can help you save premium dollars that would normally go to the insurance companies.
Here are some important comparisons between an HSA and HRA. We’ll show them as questions, so they’re easier to understand:
Can I get a general overview of both an HSA and HRA? What exactly are they?
- Health Savings Account: HSAs are accounts that are created at financial institutions (usually banks). It is established in an employee’s or individual’s name. An HSA helps someone save and pay for medical expenses tax-free. The account is owned by the individual. Participation in an HSA requires enrollment in a high deductible health plan (HDHP).
- Health Reimbursement Arrangement: HRAs are the funding option that gives the employer the most control. The employer determines what services are covered, the amount they want to give each employee, and retains control over unused funds.
Who can make contributions to an HSA and HRA?
- Health Savings Account: An employer can contribute to an HSA. The employee/individual can also directly contribute to an HSA. Further, an employee can re-direct salary to an HSA account.
- Health Reimbursement Arrangement: The employer is the only one that can contribute to an HRA. An employee may not contribute to an HRA in any way.
Who owns an HSA and HRA account?
- Health Savings Account: The individual/employee owns the account.
- Health Reimbursement Arrangement: The employer owns the arrangement/account.
Who has responsibilities during claims when they pertain to HSAs and HRAs?
- Health Savings Account: Only the employee is responsible for maintaining supporting claims records. The employer does not need to be involved.
- Health Reimbursement Arrangement: This is an ERISA plan. The employer (or HRA administrator) must substantiate claim expenses.
How involved do I have to be as an employer?
- Health Savings Account: There is no employer involvement required in administration or compliance. Although, the employer may contribute and allow for payroll deferral (either after-tax, or through Section 125).
- Health Reimbursement Arrangement: This is an ERISA plan, where compliance is required (proper reporting documents and administration).
Do my funds rollover year-after-year?
- Health Savings Account: Yes. Funds in a Health Savings Account will rollover year-after-year. There is a maximum yearly contribution that is adjusted at times. The account goes with the individual/employee if they leave or change jobs.
- Health Reimbursement Arrangement: Employers generally allow some rollover for future years’ use. However, money does not go with the employee, if the employee changes jobs.
The above questions should give you a basic understanding about the differences between an HSA and HRA. There are additional details about planning strategies when using HSAs and HRAs. Each business and individual is unique, so please contact us anytime to get further information about what types of insurance plans may fit your situation best when working with a Health Savings Account or Health Reimbursement Arrangement. These are both very valuable tools.
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