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Small Business Employee Benefits and HR Blog

FAQ: Can I have an HRA and an HSA at the same time?

Everyday I talk to employers, agents, or other financial professionals who ask me questions about Health Savings Accounts (HSAs), and how they function with Health Reimbursement Arrangements (HRAs) and insurance policies. See my earlier post "The difference between HRAs and HSAs" for appropriate background.FAQ: Can I have an HRA and an HSA at the same time?

A common question I receive is "Can an employee have an HRA and HSA at the same time?"  The answer is: "Absolutely,  yes. And they should!" 

To be eligible for a Health Savings Account (See IRS Publication 969), an individual must:

1) Be covered by a HSA qualified High Deductible Health Plan (HDHP), and 

2) Not be covered by other health insurance that is not an HDHP.   

In other words, all policies that the individual uses must be "HSA qualified" (including HRAs). There are many ways to adjust HRAs to make them HSA qualified, but the simplest and most straightforward is what we call "limited purpose HRA." In years where you want to contribute to HSA, you can only use your HRA to reimburse the following five expenses: 

  1. Health insurance premiums
  2. Wellness/preventive care (e.g. checkups, mammograms, smoking cessation, weight loss)
  3. Dental expenses
  4. Vision expenses
  5. Long-term care premiums

These five expenses are exempt from an HSAs deductible requirement, and can be reimbursed tax-free at any time. 

Obviously, a standard HRA will make you ineligible for an HSA because it would provide coverage for all medical expenses below the HSA deductible. All HRA providers should allow an employee to make their HRA HSA qualified by limiting the scope of expenses that can be reimbursed through an HRA.

Now, to summarize... 

In order for an employee to have an HRA and HSA at the same time, the employee must:

1. Purchase an HSA qualified insurance policy, and

2. Make their HRA HSA qualified by limiting HRA reimbursement to the allowed categories (see 1-5 above).

Let's walk through two examples... 

There are two basic ways an employee might receive HRA dollars from their employer:

1) A supplemental HRA providing limited purpose coverage alongside an employer-sponsored group plan (e.g. an Integrated HRA)

2) A stand-alone HRA providing premium reimbursement of an individual policy as well as limited purpose coverage  (e.g. a Small Business HRA)

Both uses of an HRA provide great employee benefits, while giving employers and employees more control of their healthcare dollars.

In each of the above scenarios, certain requirements must be met before an employee (or his or her employer) may contribute tax-free to the employee's HSA.

Scenario 1: A supplemental HRA providing limited purpose coverage alongside an employer-sponsored group plan (e.g. an Integrated HRA)

When choosing the group plan, the employee must first make sure they have an HSA qualified policy. Note: If the company does not offer an HSA qualified policy, the employee may want to consider buying an HSA qualified individual policy on their own.  

Second, the employee must make sure that their HRA is HSA qualified. This means that they must limit the expenses that can be reimbursed through the HRA to the 5 allowed categories (premiums, wellness/preventive care, dental, vision, and long-term care premiums). These expenses can be reimbursed regardless of whether the HSA deductible has been met.

Scenario 2: A stand-alone HRA providing premium reimbursement of an individual policy as well as limited purpose coverage (e.g. a Small Business HRA)

When choosing an individual policy, the employee must first make sure that it is HSA qualified.  

Second, the employee must make sure that their HRA is HSA qualified. This means that they must limit the expenses that can be reimbursed through the HRA to the 5 allowed categories (premiums, wellness/preventive care, dental, vision, and long-term care premiums). These expenses can be reimbursed regardless of whether the HSA deductible has been met.

Editor's Note: This post was first published in July 2009.

Learn the differences between HSAs, HRAs, and FSAs

What questions do you have about how HRAs work with HSAs. Let us know in the comments section below!

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