There is a lot to know when it comes to health insurance and understanding health benefits accounts can be a challenge. Throw in all the acronyms used in insurance, and you might be left thinking IDK. (Psst… that’s, “I don’t know.”) Knowing what the acronyms stand for and what they mean is important when choosing a health insurance policy and getting the most out of your benefits.
You may have heard the health insurance policy terms HSA, FSA or HRA, but what do these acronyms mean? They represent three popular employer-sponsored accounts: Health Savings Account (HSA), Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA).
Learning about each of these health benefits accounts and comparing them can be intimidating as each account has similarities and differences. Let’s learn more about these employer-sponsored benefits accounts.
HSA – Health Savings Account
In order for you to be eligible for a Health Savings Account (HSA), you must be enrolled in a qualifying high deductible health plan. The HSA is funded and owned by the insured individual, and you may contribute as much as $3,400 to this account yearly. HSAs may be used to pay for IRS approved out-of-pocket healthcare expenses.
It is important to note that contributions to an HSA, withdrawals for qualified medical expenses and interest earned on the account balance are all tax-free. At the end of the year, any unused funds in the HSA will roll over to the following year for future use. And, since the HSA is owned by the insured individual, the HSA will stay with you for life despite a change in employment status.
FSA – Flexible Spending Account
A Flexible Savings Account (FSA) is set up and owned by an employer, but funded by the employee (although some employers may choose to contribute). Individuals with FSAs make pre-tax contributions and reduce their tax liability. As of 2017, the maximum FSA contribution is $2,600. The insured employee and qualified dependents can use the FSA to pay for IRS approved out-of-pocket expenses including prescriptions, eye exams, dental care, etc.
It is important to note that FSAs end at the end of the plan year and do not roll over like HSAs. Depending on the health insurance policy, account holders may use or lose the funds, carryover a maximum of $500, or have a grace period to use any leftover money.
HRA – Health Reimbursement Arrangement
A Health Reimbursement Arrangement (HRA) is an account owned and funded by an employer. There are no limits on contributions to an HRA, the employer determines the amount they contribute and are the sole contributor so they receive the tax breaks. Employees may use the HRA funds to pay for out-of-pocket expenses, but unlike the HSA or FSA, the list of qualified expenses is determined by the employer.
It is important to note that HRAs are owned by the employer and when an individual’s employment status changes, the HRA fund will stay with the employer. Depending on an employee’s health insurance policy, unused HRA funds may roll over each year.