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Use of an HRA & an HSA Together

Employers have many options to offer employees health benefits. Two popular options are the Health Reimbursement Arrangements or Accounts (HRA) and the Health Savings Account (HSA). Although similar in concept, there are differences between the two products. Some employers offer both an HRA and an HSA. Understanding the use of an HRA and HSA together involves developing a clear picture of what each account does, its limitations and how the two can interact.

  1. What does an HRA do?

    • A Health Reimbursement Arrangement (or Account) is an account set aside by your employer with tax-free funds to reimburse you for qualified medical expenses. Balances at the end of a calendar year may carry over to the next calendar year, but the account is not portable if you leave your job. Although HRAs are usually a benefit that is part of a high-deductible health plan, it is not a requirement. Employers can offer HRAs with any kind of health plan, although there are limitations to how an employer can contribute funds to an HRA.

    What does an HSA do?

    • A Health Savings Account is an account that you set aside, in combination with a high-deductible health plan, to pay for qualified medical expenses. Any funds that you deposit to the account from your paycheck are tax-free. Your employer can also contribute to your HSA, either through a matching program or through other options, but the account is yours and is portable if you leave your job. Unlike HRAs, HSAs are only available in combination with a high-deductible health plan.

    Limitations

    • HRAs have few limitations. Only employers can contribute funds to the account, and the employee cannot take the funds when he leaves his job. There are no legal limits to how much the employer can contribute, however, and the employer decides what is reimbursable through the associated health plan (high deductible or otherwise). HSAs have a number of limitations based on the law that created them. Employees can only have an HSA through a high-deductible health plan. There are legislated minimum deductibles and maximum out-of-pocket allowable amounts. There is a maximum yearly contribution of $2,900 for individuals and $5,800 for families.

    Interactions

    • There are two main ways that HRAs and HSAs work together. Employees can use the funds in an HSA as a backup source of funding since HSAs have a yearly maximum contribution and HRAs do not. Employees should review each account's definitions of qualified medical expenses to note overlaps or differences to ensure efficient spending. Employees can also distribute or "roll over" money from an HRA to fund an HSA; the IRS has detailed rules of how the transaction must progress (see link in References).

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