I’m familiar with FSA — Flexible Spending Account. You put pre-tax dollars in it during open enrollment. You then use the money on health care expenses your insurance doesn’t cover: your deductible, copays, and co-insurance.
I’m also familiar with HSA — Health Savings Account. The main benefit of an HSA over an FSA is that the money rolls over from year to year. You can just put in the maximum and let the money accumulate. The catch is that you must use high-deductible health insurance, whereas an FSA doesn’t have that limitation.
Now a family member asked me about HRA — Health Reimbursement Account. It’s yet another account related to health care expenses. It’s sort of like HSA but not quite.
Although it’s not strictly mandated by law, her employer tied the HRA to a certain health plan that comes with a higher deductible and a higher out-of-pocket maximum than the PPO plan without an HRA. The HRA is the inducement for employees to select the cheaper plan.
The employer puts money in the HRA; you don’t. If you want, you can put more money into an FSA on top of the HRA.
Like HSA, unused money in the HRA rolls over from year to year, but only if you stay with the employer. If leave, you forfeit the unused HRA money unless you choose COBRA. Money in an HSA is always yours even if the employer contributed to it.
Unlike FSA and HSA, the HRA money only covers people who are actually under that employer’s plan. If you are married and you each have your own insurance through your own employer, one person’s HRA doesn’t cover the other person, whereas one person’s FSA or HSA automatically covers the whole family.
This also means it’s OK to have one person using an HSA and the other using an HRA, but it’s not OK to have one person using an HSA and the other using an FSA unless the FSA is a special limited-purpose FSA. Employers that don’t offer an HSA-qualifying plan typically don’t offer a limited-purpose FSA, which means if one spouse selects the HSA, the other spouse can’t enroll in the FSA from his or her own employer.
It’s too complicated. I know. It makes you wonder why we don’t just have one program and be done with it. In short:
- FSA – Use it or lose it, with limited grace period or rollover option.
- HSA – Must choose high deductible insurance. No other coverage allowed.
- HRA – Only the employer can contribute. Forfeit after leaving the employer.
If you must choose one and kill the other two, which would you choose, FSA, HSA, or HRA? Or none, and kill them all?
[Photo credit: Flickr user Shardayyy]
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