HRA or HSA - Which is Better for Your Clients?

Oct 22, 2009

The answer, of course, depends on each client’s needs. But before you can make a recommendation, you need to understand the similarities and differences between both types of consumer-directed plans.

Encouraging health care consumerism
First start with the similarities. The philosophies behind the Health Reimbursement Arrangement (HRA) and the Health Savings Account (HSA) are the same – to provide members with affordable health care coverage that gives financial support to help them pay for their health care expenses.

Both are generally offered with deductible-based health plans, which encourage members to become more involved in their own health care decisions by giving them more control over how and when they spend their health care dollars. A member can only contribute to an HSA while enrolled in a high-deductible health plan (HDHP). The minimum deductible amounts for an HSA-eligible HDHP are established by the Treasury department each year. These plans also give members the information and resources they need to help them make informed health care decisions for themselves and their families, while helping lower employers’ costs.

What’s the difference?
One of the most important differences between the two is that the employer owns the HRA and the employee owns the HSA. This means that the employee takes the HSA along when he or she changes jobs. If an employee with an HRA changes or loses his or her job, any remaining amount in an HRA defaults to the employer.

Another significant difference involves how the two types of accounts are funded. The money in an HRA is provided solely by the employer. HRAs are usually unfunded notional accounts, with no cash value. An HSA is a tax-advantaged account that can be used to pay for IRS-defined health care expenses, including long-term care and COBRA premiums. Anyone can contribute to an HSA, including the employer, the employee or a family member. However, there is an annual maximum contribution amount that is established by the U.S. Treasury.

Click here for a chart that compares HRAs and HSAs with each other, as well as with flexible spending accounts (FSAs) and Retiree Reimbursement Accounts (RRAs).

To help you determine which is best for a particular client, here are the specific advantages of each type of fund.

Advantages to plan sponsors

HRA:

Control over HRA plan design and fund rollover
Can be integrated with an FSA
Employee retention tool
Offers an additional tax-favored benefit

HSA:

Offer employees a savings vehicle for health-related expenses in retirement
Employer tax benefit
Flexibility with account contributions (employer can contribute all, some or none)
Reduced record-keeping
Members manage their own HSA funds and become more engaged in their health care behavior and spending
Lower company expenses through the cost-sharing benefits of a high-deductible health plan

Advantages to members

HRA:

Asset accumulation
An HDHP is not required.
Funded entirely by the employer.
Funds are available from the first day of coverage.

HSA:

Asset accumulation
Tax-free contributions and interest
Tax-free spending for health care expenses
Investment with interest
Long-term savings for major medical or retirement
Assets are portable
Payroll-based deductions provide members with a convenient way to fund their accounts

The Aetna HealthFund^® family of products includes both HRAs and HSAs.

Please contact your Beere & Purves Representative with any questions.