HRA/HSA/FSA Comparison

  HSA FSA HRA
What does it stand for? Health Savings Account Flexible Spending Account Health Reimbursement Account
Who owns it? Employee Employer Employer
Who funds the account? Employee, employer and others. Typically funded by employee, but employer can make contributions. Employer only.
Is it a non-forfeitable account? Yes. No. No.
What type of corresponding health plan is allowed? A high-deductible health plan is required in order to qualify for an HSA. Any type of health plan arrangement is allowed. Any type of health plan arrangement is allowed.
Can unused amount carry over? Yes. The individual owns the account and any contributions made to it, regardless of the source or timing of the contribution.

 

Plan sponsors now have the choice of either allowing employees a carryover of up to $500 OR allowing them a grace period of up to two and a half months. Unused funds remaining at the end of the plan year can be carried over to the following year if the employer/plan sponsor chooses to configure the account accordingly.
Is the account portable between employers? Yes. The individual owns the account and can maintain it with the original custodian/trustee, or rollover the HSA when leaving the employer. Rollover must be completed within 60 days to avoid tax penalty. No. FSAs cannot be rolled over to a new employer. No, the account is not portable between employers.  If an employee leaves, their remaining balance is forfeited and remains with the employer.
Does interest accrue? Interest can be accrued on a tax-deferred basis in qualified HSAs. Interest does not accrue. Regulations do not prevent interest accruals, but typically, employers do not choose to fund interest accruals.
Is the account subject to COBRA continuation? No, but since an HSA is portable and owned by the employee, the individual may continue to use it after leaving an employer. COBRA rights apply. COBRA rights apply.
How is it funded? Money is deposited directly into the account. Contributions can be made by employee or other person on an "after tax," by employer or through an IRS section 125 cafeteria plan. A set amount of pre-tax wages designated by the employee is deposited directly into an account. Funds remain with the employer until used. The employer deposits a set amount for each covered individual or family.
What is the contribution amount? Annual contributions are established by the IRS and indexed for inflation. Please refer to the IRS Contribution and Deductible Guidelines for specifics. If the full amount has not been funded in the calendar year, additional contributions can be deposited through the April 15 tax deadline. No restrictions. For health care FSAs, the employer determines the minimum and maximum amounts. No restrictions. For HRAs the employer determines the contribution amount and any account maximums.
Is there a "catch-up" contribution provision for older workers? Employees from age 55 up to when they are enrolled in Medicare may contribute more to the account per year. Please refer to the IRS Contribution/Deductible Guidelines for specifics. Not available. Not available.
Is a pre-tax salary reduction to the fund account allowed? Yes. Yes. No, employer-funded only.
Is vesting allowed? An employee is always 100 percent vested in these funds. Employee contributed funds are 100 percent vested. Regulations do not address vesting, but it is not typically mandated.
Do nondiscrimination rules apply? Employer contributions made outside of an IRS Section 125 cafeteria plan are subject to a comparability requirement.  Employers cannot make matching contributions, but they can make comparable ones so all employees receive the same dollar amount.  Employer contributions made to employees under a cafeteria plan, however, are not subject to the comparability rule; but cafeteria plan non-discrimination requirements apply. Yes. Yes.
What is the tax treatment for employers? Employer contributions are excludable for income and FICA tax purposes. Employee contributions made through pre-tax cafeteria plan salary reduction are not subject to employer FICA and other employment tax. Employer contributions are excludable for income and FICA tax purposes. Employer contributions are excludable for income and FICA tax purposes.
What is the tax treatment for employees? Account distributions are tax-free as long as funds are spent on health care, as defined under 213(d) of the Internal Revenue Code (IRC). Employee contributions to an FSA are tax-free, and therefore reduce annual taxable income. Reimbursements are tax-free. Reimbursements are tax-free.
What expenses qualify for distribution? Any otherwise unreimbursed expenses as defined under 213(d) of IRC, except amounts distributed to pay health insurance premiums. Premiums are allowable for: any health insurance (other than a Medicare supplement policy) for a person age 65 or older, COBRA, long-term care premiums, and health care while receiving unemployment compensation. Any otherwise unreimbursed expenses that are defined under 213(d) of IRC, except that health insurance premiums and long-term care services are not reimbursable even though tax deductible under 213(d). Employers configure the account to reimburse all or a subset of any otherwise unreimbursed expenses that are qualified under 213(d) of IRC.  This can include eligible health insurance and long-term care insurance premiums.  However, long-term care services and premiums for coverage under employer pre-tax plans are not reimbursable even though tax deductible under 213(d).
Can Funds be used for non-medical expenses for those under age 65? Non-medical distributions are included in gross income and subject to a 10 percent additional tax. An exception to the 10 percent additional tax applies to distributions for ineligible expenses for those individuals who are 65 or older or disabled or deceased. No. The health portion of and FSA can only be used for qualifying expenses. No. Funds may only be used as described above.
Can funds be used for non-medical expenses for those over age 65? Yes. Non-medical distributions are included in gross income, but are not subject to 10% tax penalty No. The health portion of an FSA can only be used for qualifying expenses. No. Funds may only be used as described above.
Can COBRA premiums be reimbursed from the accounts? Yes. Distributions to pay premiums for COBRA are tax-free. No. A health FSA may not reimburse participants for premiums paid for other health insurance. This includes premiums paid for health coverage under a plan maintained by the employer or the employee's spouse or dependent. Yes. COBRA premiums may be reimbursed from the account.
Must a medical expense be incurred during the plan year the contribution is made? No. However, no reimbursements can be made for expenses incurred prior to the account being established. Yes. Expenses must be incurred during the plan year of the contribution. No. However, reimbursements can not be made for expenses incurred prior to the account being established.
Is the annual amount of the contribution available on the first day of coverage? Only the amount contributed to date is available for reimbursement. Yes. The total amount elected by the employee for the plan year must be available on the first day, regardless of the amount contributed. The employer-designated HRA amount may be available on the first day of coverage, but can be prorated during the year, at the election of the employer.
Is the use of a debit stored value card allowed? Yes. Yes. Yes.
Is third-party substantiation of expenses required? No. The burden is on the employee to substantiate that the expense has been incurred, the amount of the expense, and that it is a qualifying expense. Yes. IRS regulations governing FSAs require that each claim be substantiated before it can be reimbursed. Yes. IRS regulations governing HRAs require that each claim be substantiated.
Can the account be integrated with other accounts? Most FSAs or HRAs cannot be integrated with HSAs, except under limited circumstances, i.e., a limited-purpose or
post-deductible FSA or HRA.
A health care FSA can be sold with an HRA, but only a limited health care FSA can be integrated with an HSA. An HRA can be integrated with an FSA, but a full-purpose HRA cannot be integrated with an HSA.
Is ERISA applicable? Generally no, but depends upon level of employer involvement. Generally, yes. Generally, yes.