Choosing Between an HRA and HSA: Reducing the Cost of Employee Benefits

The cost of employee health benefits is rising at an exponential rate.  As an employer, you may be searching for ways to control costs while at the same time being able to offer your employees a benefit. Tax-advantaged benefit accounts represent a compelling way to help offset the increase in your employees’ out of pocket health care responsibilities. Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs) will not only empower your employees to save for their cost of care and better manage their healthcare spending- every dollar an employee contributes will reduce your payroll tax liability.

Differences between and HRA and HSA    

An HRA is a reimbursement account set up and funded by an employer to cover eligible healthcare expenses.  Unlike a healthcare FSA where the IRS defines the eligible services, the employer defines the services eligible for reimbursement from an HRA. Typically an employer will reimburse healthcare services like doctor’s office visits and hospital service and prescriptions.

Unlike an HRA, an HSA requires that the insured be covered under a high deductible health plan (HDHP). It also differs in that the account is owned by the participant. While most HSA participants enjoy the convenience of account contributions being deducted pre-tax from their paychecks, HSAs may also be funded by their employer or family member (or by the employee on a post-tax basis).  The account owner can spend the funds on current eligible expenses, or save them for future expenses. Because the account is owned by the individual, the participant is solely responsible for the substantiation of expenses and is not required to send receipts to their employer for administrator.

For more information contact JerriLynn Cobb at [email protected].