What’s the difference between HSA, FSA, and HRA?

By Janice Rodden | Sep. 24, 2019

Insurance doesn’t cover everything. That’s where HSA, FSA, and HRA savings plans come in—they’re a way to set aside money for health expenses you know are coming, that don’t fall under your benefit umbrella.

If you are self-employed, or buy your own insurance, you’re only eligible for an HSA. If you get insurance through your employer, you may also have access to one—or all of these account types. And you’re probably wondering how (and why) you should choose one over the other.

In the alphabet soup of payroll savings plan acronyms, it’s easy to lose track. What does each abbreviation really mean? How are they different? What’s the same? If you mix up the rules, it could end up costing you money. Use this guide to tell them apart.

What does HSA stand for?

A health savings account (HSA) is a special way to set aside money to cover your medical costs before you meet your insurance deductible. It’s available to anyone with a high deductible health plan (HDHP).

What qualifies as a “high” deductible changes every year. In 2019, it’s $1,350 or above for an individual, and $2,700 or above for a family. In 2020, those amounts go up to $1,400 and $2,800. “It’s important to know what expenses have to be paid out-of-pocket prior to the deductible being met within the HDHP,” says Tim Church, Pharm.D., director of content at Your Financial Pharmacist. “Although premiums will generally be lower, if one is not able to cover thousands of dollars for unexpected care, this could lead to medical debt or deter many from seeking care in the first place.”

The intent of an HSA is to make it easier to pay for medical costs (such as unexpected visits to the doctor or care for a chronic condition) before your deductible is met and your insurance begins to cover costs. The account is funded a little from each paycheck; employers can add funds as part of a health benefits plan as well. “I think anyone diagnosed with one or more chronic conditions likely utilize healthcare more often, and thus have more opportunities to use their HSA for visits, prescription copays, and/or ancillary supplies that may not be covered by their insurance,” says Jeffrey Bratberg, Pharm.D., a clinical professor at the University of Rhode Island College of Pharmacy.

The perks are:

Any money you save is pre-tax. Meaning, it reduces your gross income, and the amount of tax you pay.
Interest on the money in your account is tax-free.
You own the account. So, if you change employers you keep your money, and there’s no “expiration” of funds at the end of the year. If you don’t spend all the money you’ve saved, the balance rolls over. You can make withdrawals for unqualified expenses on the account, but you’ll pay a tax penalty until you’re over age 65.

Additionally, “for those with good cash flow or other savings to cover medical expenses in a high deductible health plan (HDHP), one can treat an HSA as a tax-favored retirement account with the money being invested,” explains Dr. Church. “With its triple tax benefits, contributions up to the maximum limits will lower one’s adjusted gross income (AGI), grow tax-free, and distributions can be made tax-free for qualified medical expenses or regardless of use after age 65.”

You receive a debit card or checks that draw on your HSA balance for eligible expenses, like hearing aids or lab fees for having blood drawn. “I recommend that people use them to pay for prescription drug copays, OTC medications, sunscreen, visit copays, and even pharmacist clinical services if covered by their HSA,” says Dr. Bratberg. To save even more money, use your SingleCare card at the pharmacy counter, to make sure you get the best price.

You can contribute up to $3,500 for an individual or $7,000 for a family in 2019. In 2020, the maximums climb to $3,550 and $7,100 respectively.

What does FSA stand for?

A flexible savings account (FSA)—sometimes called a flexible spending arrangement—is a way to set aside pre-tax dollars for health care expenses if you have insurance through your employer. Employers can contribute to your FSA, but it’s not required.

You can save up to $2,650 a year per employer. Any contributions to your FSA reduce your gross income, and the amount of tax you will pay. There are two ways to spend the money in your FSA: using a debit card to pay as you spend, or by submitting receipts (and other supporting documents) for reimbursement.

Money saved in an FSA can pay for a wide variety of medical expenses and supplies—and some employers offer dependent care FSAs to save for childcare costs. Just be careful, because FSAs have certain restrictions:

You have to declare how much to contribute each pay period, and often can’t change it until an open enrollment period.
Your employer owns the account. That means if you change employers, you lose the money.
Most FSAs require you to spend any money before the end of the year. If you don’t spend the balance, FSAs do not roll over unused funds. You lose the money.

If you have a chronic health condition that you know will cost a certain amount throughout the year, it can be a good way to reduce tax bills. Or, in certain circumstances if you hit the contribution maximum for an HSA, you can have an FSA, too. But, if you’re young and healthy with a tendency to forget about health care, an FSA may not be the right choice.

HSA vs. FSA

HSAs and FSAs have a lot in common. You contribute pretax money—which reduces your gross income for tax purposes—then use it to pay for medical expenses your insurance plan doesn’t cover. What’s the difference between HSA and FSA? Here are some important ones.

HSAs

HSAs are only for people with high-deductible health plans.
The contribution limit is $3,500 for an individual, $7,000 for a family.
You can change how much you contribute throughout the year.
HSA funds roll over from year-to-year.
HSAs are available to self-employed and regular employees.
The individual owns the HSA account.
The account earns interest, and it’s tax-free.
The account is yours even if you change jobs.

FSAs

FSAs are available through employers, with or without a health plan.
The contribution limit is $2,650.
You can only change your contribution amount during open enrollment.
FSAs are use-it-or-lose-it, meaning, leftover money is gone at the end of the year.
FSAs are not available to people who are self-employed.
The employer owns the FSA account.
The account does not earn interest.
You lose the account if you change jobs.

What does HRA stand for?

A health reimbursement account (HRA)—sometimes called a health reimbursement arrangement—is a way for your employer to pay for your out-of-pocket healthcare expenses with any type of insurance plan. You can’t add money to it, only your employer can. Your employer decides how much to put into the plan, and any funds are available at the beginning of the year.

You can use HRA funds by paying for medical expenses with an HRA debit card or by submitting expenses for reimbursement. HRA accounts work with FSA and HSA accounts. Typically expenses are paid from an FSA or HSA first, then funds from the HRA are used for the difference.

Depending on how the plan is set up, the funds might roll over from year to year.

HRA vs HSA

The goal of an HRA and an HSA is the same: to set aside money to pay for health care expenses that aren’t covered by insurance. That is where the similarities end. The difference between HRA and HSA? Read the list below.

HRAs

HRAs can be offered with any type of insurance plan.
There is no minimum or maximum contribution limit. But, an employer must extend the same HRA benefits to all employees of the same class.
Only employers can contribute to HRAs.
HRA funds typically revert back to the employer at the end of the year. Some employers may allow a portion of funds to rollover.
HRAs are not available to self-employed individuals.
The employer owns the HRA account.
The account does not earn interest.
You lose the account if you change jobs.

HSAs

HSAs are only for people with high-deductible health plans.
The contribution limit is $3,500 for an individual, $7,000 for a family.
Anyone can contribute to HSAs: individuals, employers, or family members.
HSA funds roll over from year-to-year.
HSAs are available to self-employed and regular employees.
The individual owns the HSA account.
The account earns interest, and it’s tax-free.
The account is yours even if you change jobs.

HRA vs HSA vs. FSA comparison

Still unsure how to tell these accounts apart? Refer to the table below, for their main differences.

	HSA	HRA	FSA
You own the account.	✔	✘	✘
Your employer owns the account.	✘	✔	✔
If you leave your employer, you can keep the money.	✔	✘	✘
You put money in.	✔	✘	✔
Only your employer puts money in.	✘	✔	✘
There are limits on how much you can contribute each year.	✔	✘	✔
You must have a high-deductible insurance plan.	✔	✘	✘
Unspent money always rolls over from year-to-year.	✔	✘	✘