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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.
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
- Control over HRA plan design and fund rollover
- Can be integrated with an FSA
- Employee retention tool
- Offers an additional tax-favored benefit
Advantages to members
- 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
- Asset accumulation
- An HDHP is not required.
- Funded entirely by the employer.
- Funds are available from the first day of coverage.
The Aetna HealthFund® family of products includes both HRAs and HSAs.
- 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
your Beere & Purves Representative with any questions.