HRA’s, HSA’s, FSA’s…What’s The Difference?

Mary Nash, CFCI, HIA, FLMIAmerican Fidelity Assurance

Company

Acronyms • CDHC - Consumer Driven Health

Care• Health FSA - Health Flexible

Spending Arrangement• HDHC - High Deductible Health

Coverage• HDHP - High Deductible Health

Plan• HRA - Health Reimbursement

Arrangement• HSA - Health Savings Account

Consumer Driven

Health Care• A way of empowering consumers to take control of their own health care and health insurance needs

• Encourages individuals to become actively involved in health care decisions

• Places many of the responsibilities of health care, usually assumed by the employer, back on the individual

What is an HRA?

• Mechanism to fund health care costs (CDHC)

• 100% Employer funded• Reimburses for certain

medical care expenses• Is NOT a benefit offered

under a Section 125 Plan• Can be offered with HDHC

What is an HSA?

• Mechanism to fund health care costs (CDHC)

• Tax favored trust account• Employer or Employee funded• Reimburses for certain medical care

expenses• May or may not be offered through a

Section 125 Plan• Must be offered with qualified HDHP

What is a Health FSA?

• Mechanism to reimburse health care expenses

• Usually Employee funded• Reimburses for certain medical care

expenses• Must be offered through a Section 125 Plan• Does not require participation in any medical

plan

So, What’s the Difference?

An employer should determine what they want to accomplish with their benefit plan before they decide which reimbursement account they offer to their employees.

Although they appear similar on the surface, each account is designed to achieve different results.

Let’s look at some of the design differences...

Who is Eligible

to Participate?• HRA - Any employee that meets the

employer’s eligibility requirements.• HSA - Any individual who is covered by a

qualified HDHP; is not covered by a non-HDHP (with certain exceptions for preventative care, permitted coverage, and permitted insurance); who is not entitled to Medicare; and is not a tax dependent.

• Health FSA -Any employee that meets the employer’s eligibility requirements for the 125 Plan.

Eligible Under a Section 125

(Cafeteria) Plan?• HRA - HDHC inside or outside of

cafeteria plan; HRA is not eligible under cafeteria plan (employer contributions).

• HSA - Qualified HDHP and/or HSA contribution can be under cafeteria plan OR can be outside of cafeteria plan.

• Health FSA - Must be under cafeteria plan.

Who Can Contribute?

• HRA - Must be 100% employer funded. No contributions can be made by the employee.

• HSA -Anyone can contribute to an individual’s HSA account. Gift taxes may apply.

• Health FSA - Usually employee funded, but can be employer funded or combination of both.

Are There Limitations on the

Amount Contributed?• HRA - No, the employer

determines how much to contribute. Cannot be directly or indirectly funded by cafeteria plan.

• HSA -Yes, the IRS determines how much can be contributed for a tax year (indexed annually).

• Health FSA - No, the employer determines how much to contribute.

Does the Employer Have to

Fund the Account?• HRA - No, the employer can credit the

employee’s account any time during the year.

• HSA -Yes, the employer must fund the account monthly or pre-fund the account.

• Health FSA - Yes, if the employer is making a contribution to the account, it must fund it during the plan year. Can be pre-funded.

Does Full Annual Election Have to

be Available (Uniform

Coverage Rule)?• HRA - No.

• HSA -No.

• Health FSA - Yes.

What Expenses Can be

Reimbursed?• HRA - 213(d) medical expenses, LTC premiums,

and accident/health coverage. No non-medical expenses.

• HSA - 213(d) medical expenses; LTC premiums, health insurance premium while on COBRA, receiving unemployment compensation or is over age 65; and non-medical expenses subject to taxes and 10% excise tax. Can be used as retirement supplement.

• Health FSA - 213(d) medical expenses. No premiums. No non-medical expenses.

Can the Employer Restrict What

Expenses are Reimbursed?

• HRA - Yes.• HSA - No.• Health FSA - Yes.

Is Expense Substantiation

(Receipts) Required?• HRA - Yes. Substantiation (copy) must be

submitted to provider for reimbursement.• HSA - No. Substantiation must be

maintained by individual for tax purposes.• Health FSA - Yes. Substantiation (copy)

must be submitted to provider for reimbursement.

Do Claims Have to be Adjudicated by

Third Party?• HRA - Yes.• HSA - No.• Health FSA -

Yes.

Do Claims Have to be Incurred During Current Period of

Coverage?• HRA - Yes, with the exception of

insufficient HRA balances.• HSA - No, expenses must have incurred

after HSA account established.• Health FSA - Yes, including grace

period.

Are Rollovers Allowed?

• HRA - Yes, if employer allows. Is not required.

• HSA - Yes, must be allowed.

• Health FSA - No, with grace period exception.

Any Special Health Insurance

Required?• HRA - No, employer can offer with

HDHC or as stand-alone plan.• HSA - Yes, must be offered with

qualified HDHP.• Health FSA - No, can be offered

with any or no health insurance.

Can Individual Participate in More Than One at Same

Time?• HRA - Can participate in HRA and FSA. Can participate in HSA if HRA is limited.

• HSA - Cannot have general purpose FSA or HRA and HSA. Must have limited FSA or HRA.

• Health FSA - Can participate in FSA and HRA. Can participate in HSA if FSA is limited.

Can Mid-Year Election Changes

be Made?• HRA - Yes, this is not part of the 125 plan so

it does not have to follow rules. If the HDHC is under 125, then the 125 rules would apply to that benefit.

• HSA - Yes, eligibility is determined monthly so changes can be made at any time. If the HDHP is under 125, then the 125 rules would apply to that benefit.

• Health FSA - No, unless for a qualified election change event.

Can Account be Spent Down After

Termination?• HRA - Yes, if employer

allows. COBRA may apply.• HSA - Yes, must be allowed.• Health FSA - No, unless

COBRA is elected.

Questions?

Thank You!