There are a lot of acronyms used when discussing non-traditional health benefits options. Two of the most popular and promising options are HSAs (Health Savings Accounts) and HRAs (Health Reimbursement Arrangements). Even though they both have the same basic idea, there are a few key differences. If you have an HSA/HRA or you are considering offering one to your employees, consider the following:
HRAs are owned by the employer, HSAs are owned by the individual
HRAs are employer sponsored plans. An employer sets allowances for employees who can then use that money to be reimbursed for medical expenses. HSAs are individual accounts that employers sometimes choose to contribute to. While HSAs are often packages as "employer benefits", they are really more like IRAs in that individuals can set them up and contribute to them on their own.
HSAs are actual accounts
When money is put into an HSA, it belongs to the account holder. If an employer contributes to an employee's HSA, the employee controls that money immediately, even if they leave the company.
When money is added to an HRA, it still belongs to the employer until an actual medical expense is incurred. If an employee leaves a company without spending all the money in the HRA, they lose access to that money.
HSAs don't cover health insurance premiums
HRAs are designed to act as full health benefits solutions so that employers can pay all or some of the medical expenses of employees. HSAs are meant to cover expenses that fall under the deductible of a health insurance plan. As such, HSA money generally can't be used to pay for the insurance itself.
While we're on the topic, an employer can choose exactly which medical expenses an HRA will cover. If a company wants to cover insurance and pharmacy, but not dental or maternity, the HRA can handle that. Because HSAs are owned by the individual, the employer doesn't have anything to do with what can be reimbursed.
HSAs require compatible plans
In order to contribute to an HSA, an individual must have a high-deductible plan. High deductible plans make a lot of sense for most Americans, so this isn't a problem, but keep in mind that HRAs don't have that restriction.
The Bottom Line
HSAs and HRAs are both really great products. In general though, here's my take on things:
- Employers should pretty much always offer HRAs instead of HSAs to their employees. HRAs are way more flexible and they allow reimbursement for health insurance.
- That said, HSAs are also great for most people. Regardless of what your employer is offering you, consider getting an HSA just like you would an IRA.
Since we sell HRA software here at Zane Benefits, I think it goes without saying our health benefits program is based around them (we eat our own dog food). I love having an HRA, but I've also got plans to set up my HSA in the next couple of months. These things aren't mutually exclusive. I'll make sure to write a post about my experiences as soon as I get my HSA rolling.
If you want a more detailed look at these two types of plans, we have a comparison at
ZaneHRA.
