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Small Business Employee Benefits and HR Blog

HSAs vs HRPs (Savings Accounts vs Reimbursement Plans)

Which is better: A Healthcare Reimbursement Plan (HRP) or a Health Savings Account (HSA)? The answer depends on what you are trying to accomplish and whether you are an employer or an employee. For most employers HRPs are superior to HSAs.HSA vs HRP - Savings Accounts vs Reimbursement Plans

What is a Healthcare Reimbursement Plan (HRP)?

A Healthcare Reimbursement Plan, or HRP, is notional account that employers use to reimburse employees for individual health insurance premiums. Funds do not accumulate in a separate account; rather, employers pay only after their employees incur an eligible expense.

What is a Health Savings Account (HSA)? 

A Health Savings Account, or HSA, is a financial account established by an individual to pay for qualified medical expenses. HSAs must be linked with a qualified high-deductible health insurance plan, and anyone can contribute to it.

HSA vs HRP - Which One is Right for Your Business? 

Several characteristics make HRPs superior for employers, while still benefiting employees. HSAs generally favor employees but are more costly to employers. There are key similarities and differences to remember.

HRP vs HSA - Similarities

Employer contributions to both HRPs and HSAs are tax-deductible; employees aren’t taxed on these contributions. Employer HRP contributions are excluded from wages, while employees generally deduct HSA contributions on their personal tax returns.

Both HRPs and HSAs encourage employee "consumerism," helping employees pay attention to healthcare costs and use healthcare more prudently.

Generally, HRPs are better for employers while still very beneficial for employees. To make the right decision, however, employers need to understand the key differences between HRPs and HSAs.

HRP vs HSA - Important Differences

The differences between HRPs and HSAs relate to control, flexibility, and simplicity.

  • Control. Employers have more control over costs with HRPs. Only employers may contribute to HRPs and use these funds to reimburse actual expenses. With HSAs, contributions are made whether or not expenses are incurred. Employees forfeit unused HRP funds when they change jobs but keep all unused HSA employer contributions.

  • Flexibility. With HRPs, employers can adjust contributions by class of employee (e.g. management, IT, clerical). HRPs can be used with any type of health insurance. Additionally, HRPs are easier to use in conjunction with other employee benefits like cafeteria plans and FSAs.

  • Simplicity. HRPs are easier to understand, administer, and manage. Employees don’t have to store receipts for multiple years, worry about tax deductions, or pay monthly administrative fees to their bank or broker.

Healthcare Reimbursement Plan (HRP)
Health Savings Account (HSA)
Control
Employers pay when expense is incurred, and only to extent of contributions.
Employer pays full amount at beginning of year, whether or not expenses are incurred.
Funds stay with the employer when the employee leaves the company.
Funds go with the employee when he/she leaves the company.
Only employers may contribute.
Employers, employees, or third parties may contribute.
Flexibility
Employer selects maximum contribution.
IRS determines maximum contribution.
No restrictions on health insurance.
Must be paired with qualified high deductible plan.
Contributions vary by class of employee.
All employees receive same employer contribution.
May be used with FSA with few restrictions.
May be used only with restricted, limited-purpose FSA.
Simplicity
Funds paid from company bank account.
Employee sets up account with bank or brokerage and has separate policy with insurance company.
Employee submits documentation of eligible expenses.
Employee manages account and submits eligible expenses for payment.
Rules are relatively simple; driven by IRS guidelines, the Affordable Care Act, and company plan design.
Complex IRS regulations govern expenses, funding, participation, and fiduciary requirements.

HRP vs HSA - For Most Employers, HRPs are Superior

With HRPs, the best-in-class healthcare reimbursement software platforms provide the flexibility to create and administer separate employee classes, control how much the employer pays, and accommodate different health plans and carriers. Healthcare reimbursement software lets employers create electronic plan documents and communicate the new plan to employees. Software also ensures the plan will be fully compliant with applicable regulations including IRS, ERISA, COBRA, HIPAA, and ACA.

What do you think?The Comprehensive Guide to the Small Business HRA