You may or may not be familiar with health savings accounts (HSAs) and health reimbursement arrangements (HRAs). And although they sound similar and both allow for tax-free reimbursement of qualified medical expenses, they are very different when you look at them closely. Here are the differences between and HSA and HRA.
- Does the account need to be paired with a high deductible health plan (HDHP)? An HSA must be linked to a qualifying HDHP with an individual deductible of at least $1,300 and a family deductible of $2,600. It’s common to link an HRA with a HDHP, but there is no requirement.
- What happens to unspent account funds? HSA funds are owned by the employee and any unspent funds roll over to the next year. An HRA is a notional account controlled by the employer. It’s up to the employer if unspent HRA funds roll over to the next year.
- Can you invest account funds and earn interest? HSA account holders can invest funds in interest-bearing accounts or, if allowed, mutual funds and save for the long term such as paying for health care in retirement. It’s uncommon for HRAs to pay interest and they do not allow account holders to invest funds.
- Who funds the account? HSAs can be funded by employees, employers or both (or any consumer who has an HSA) up to the annual IRS contribution limits. Employer contributions are not taxable to the employee. The IRS sets annual HSA contribution limits; for 2015 they are $3,350 for single coverage and $6,650 for family coverage and an additional $1,000 catch-up contribution for those ages 55 or older. HRAs must be funded only by the employer, and employer contributions are not taxable to the employee.
- What happens when the employee leaves the company? Because the HSA is owned by the employee, it is a portable account and the employee can transfer the funds from one administrator to another. Generally, HRA funds remain with the employer when employment terminates.
Which account is right for your organization? Learn more at OptumBank.com.