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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?
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mjs says
Wrong near the end!:
“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.”
If a couple are under two different insurance plans, they are not on the other’s insurance plan, and only one plan has an HDHP/HSA option, it is perfectly acceptable for the non-HDHP/HSA spouse to enroll in a non-retricted medical FSA and pay his/her expenses (and any dependents on that plan) through that.
What you can’t do is select “family” coverage (wich allows a higher HSA contribution limit from individual) under a HDHP/HSA unless you’re adding someone (e.g. dependent) who is not covered by the spouse’s coverage. Adding just one kid to get “family” status gets you a higher limit to put into your HSA, but it also has the risk of having more out-of-pocket expenses (since that kid could have been on the other plan where costs are pooled toward the plan’s medical deductables)
If both plans have HDHP/HSA options, then yes FSA’s are limited, and you also can’t both contribute to FSA’s beyond their family contribution limit between you.
These are all valid with no restrictions to FSAs (assuming no HDHP/HSA under Spouse 2’s plan):
Example A (no kids): Spouse 1 “individual” HDHP/HSA, Spouse 2 “individual” FSA.
Example B: Spouse 1 “individual” HDHP/HSA, Spouse 2 & Kids “family” FSA.
Example C: Spouse 1 and Kid 1 “family” HDHP/HSA, Spouse 2 & Kid 2 “family” FSA.
Example D: Spouse 1 and Kids “family” HDHP/HSA, Spouse 2 “individual” FSA.
Harry says
Your examples B and C are not valid. Spouse 1 *can* request reimbursement from Spouse 2’s FSA whether Spouse 1 actually does so or not. That makes Spouse 1 ineligible to contribute to the HSA. I’ve never heard of an “individual” FSA that limits reimbursement only to the enrolled individual although it theoretically can exist.
See this from HSA Administrators:
FAQ – What if my spouse is enrolled in a Flexible Spending Account (FSA)?
mjs says
If both plans have HDHP/HSA options, then yes FSA’s are limited, and you also can’t both contribute to FSA’s beyond their family contribution limit between you.
above should have said: “HSA’s beyond the overall family contribution limit”
Lynne says
I think HSAs are the future. Kill the rest.
–More employers are going in the direction of HDHPs, so HSAs are becoming more widely available.
–HSAs are the most flexible accounts, usable for current healthcare expenses, or as retirement savings, or a mix of both.
–You don’t have to worry about use-it-or-lose-it, or changing employers as long as you keep an HDHP plan.
–My colleagues, who are mostly younger than I am and don’t yet care as much as I do about benefits & savings & retirement planning, are so confused about all the different initials that they mostly don’t bother with any of them.
–HRA? Really?
Steve says
You only need to keep an HDHP (and only an HDHP) to contribute to the HSA account. You can have and withdraw from an HSA account even if you switch to non-HDHP health insurance later.
harry @ 4HWD says
I seriously don’t understand why every single person(in decent to good health) that has the option to go with an HSA doesn’t do it? It’s triple tax advantaged! Just do the math, HSA’s almost always come out ahead whether you use very little or a lot of insurance each year. If you consistently spend a few thousand every year, HSA’s might not come out ahead but who does that?
You get the difference in premium, plus the employer contribution, plus your contribution and you can save your receipts and re-imburse yourself at ANY point in the future. I haven’t spent one penny of my HSA yet but I have a couple thousand in receipts that I can cash out tax free in 40 years. Over that 40 years, my couple thousand will compound tax free. I can’t make it sound any better.
Harry says
Wait until you have kids. 🙂
Lynne says
I agree HSA is best for most of us, but even without kids it’s pretty easy for a person with, say, a chronic illness that requires pricey prescription meds, to spend thousands of dollars a year.
And not all HSAs are as good as yours apparently is. We don’t get an employer contribution, and the investment options in our HSA are poor; no index funds.
I like using my employer’s HSA via Chase because I can contribute via payroll deductions without paying Social Security and Medicare taxes. I think I could legally open a second HSA somewhere with better investment options, and transfer money periodically from my original HSA (which I’d keep to take advantage of those pre-FICA deductions). But when I mentioned this to our HR department, they acted like their heads would explode. So for now I’m lobbying for better investment options in the Chase HSA.
Harry says
@Lynne – You don’t have to tell your HR about your own HSA. It’s as easy as writing a check and depositing it. In case you haven’t seen: How To Rollover HSA On Your Own.
JAB says
I agree … I vote for HSA’s since they are THE most flexible accounts when it comes to paying lower taxes in retirement. Choosing an HSA while working was one of the best financial decisions I have made … invested my HSA contributions in a Vanguard fund for five years and never used the money for current medical expenses. (Saved all of my receipts, though.)
Retired with spouse not yet eligible for Medicare. Bought Bronze HSA policy for her on the Healthcare exchange, contributed $4,350 to her HSA, and received premium credits that reduced her HC premiums to less than $50 month (based on taking only $32k of income this year) … using HSA tax free money I saved earlier for living expenses.
Erik says
My employer added the HRA this year. After hearing it explained to us, I was left with the impression that it’s most valuable for the lowest income category of employees that just find the normal/premium plan or HDHP too expensive. Maybe HRAs vary, but it just didn’t feel like I would ever consider one over HDHP w/ HSA.
What I dislike about my health plan is that my employer charges a $100/month fee to have my spouse on the plan if the spouse can have insurance through their employer but decides against it. The same fee is there for my spouse’s plan if we were to both go on it. So we are left with the debate of whether to do separate plans and meet two deductibles or keep it simple and pay $100/month. What I think seems silly is that if an older employee has a spouse that is retired, they don’t have to pay this fee… so this older couple that is more likely to use health insurance pays less with no fee.
But I digress. I love my HSA and Dependent Care FSA.
Harry says
Yes HRAs vary. The one I mentioned happens to bundle with an insurance plan. Employers can also offer an HRA not linked to any insurance.
Employers want to push people to get their subsidies elsewhere. Thus the surcharge for spouse who has the option to get his or her own coverage. Some employers also offer a credit for opting out. Can one of you take the HRA and go on the other person’s plan? The HRA would pay the $100/month surcharge.
Erik says
“Can one of you take the HRA and go on the other person’s plan? The HRA would pay the $100/month surcharge.”
I’ll be assessing this for 2015 because of your post. 😉
Harry says
On second thought, if you want family coverage HSA, the HRA would invalidate it. Too complicated. 🙂
Steve says
All else being equal, HSA is a clear winner.
D says
I am trying to get my employer to add the vision + dental only FSA option for those who elected to go HSA. My kids will need braces soon enough, I could use another $2500 of pre-tax space.
This is our first year in the HDHP/HSA. We have spent a fair bit on different things that have cropped up. The most amazing thing is how the list prices and provider network prices vary. Its pretty much impossible to model whether my net out of pocket is going to be more or less than the PPO I had before (w/higher premiums and not nothing deductibles). At the end of the day I guess I am happy to house another $6550 of tax advantaged dollars and I suspect it all comes out in the wash.
robert says
HSA is the clear winner!
Megan says
Can a single person have an HRA account through their employer and still contribute to an HSA plan on their own as long as they have a high deductible plan? You mentioned about “one invalidating the other” in your replies, but I don’t quite understand.
Harry says
To be able to contribute to an HSA, you must have only high-deductible plan, with nothing else paying for medical (dental and vision are OK). An HRA counts as medical coverage. That will make you ineligible to contribute to an HSA.
Sai says
I have this situation and hoping some experts can answer this here.
I have HDHP with HSA at my work for my family and i can’t able register for dependent care FSA at my work as yearly enrollment is over for this year.
Can my wife enrolled for dependent care FSA(not healthcare FSA)
Harry says
Yes, she can. The FSA in this article is only the Health Care FSA. Dependent Care FSA is not affected by the health care choices.
Mia says
can they do it more complicated :-(((
we have family of 3, always had 2 different health plans: spouse 1- self, spouse 2- self + child.
both plans have been HDHP+HSA, no issues since 2006, contributed family max split between 2 HSA.
This year employer of spouse 1 decided to do HDHP+HRA !!! only one option available. do i understand that correctly that Spouse 2 still can contribute to his HSA up to Family max? Spouse 2 HDHP+HSA covers self + child, that still makes spouse 2 eligible individual, right?
Harry Sit says
You want to ask whether spouse 1’s HRA can reimburse expenses incurred by spouse 2 or child. If it can reimburse, regardless whether you actually request reimbursement or not, it will make spouse 2 ineligible for contributing to an HSA. In my example the HRA can only reimburse one’s own expenses but a different employer can set up the HRA differently.
Jazzy says
Question:
My husband has an HRA account and family health insurance through his work, and I set-up an FSA account through my work. Can I use the HRA account/debit card to pay any doctor’s visit (co-pay) of me, my husband, and child, and later to send the reimbursement form for my FSA?
Can I use both or not?
Or do I have to pay out of pocket first and ask for reimbursement thru FSA?
Thanks!
Harry Sit says
You can’t double-dip using the same expense.
fay says
Example A: Spouse 1 “individual” HDHP/HRA, Spouse 2 “individual” HDHP/HSA.
Example B : Spouse 1 “individual” HDHP/HRA, Spouse 1 & Spouse 2 “Family” HDHP/HSA.
Example C : Spouse 1 & Spouse 2 “Family” HDHP/HRA, Spouse 1 & Spouse 2 “Family” HDHP/HSA.
HRA has no limit and covers whoever is in the HDHP/HRA insurance.
My employer provides a HDHP/HRA bundle plan and my spouse’s employer provides a HDHP/HSA bundle plan. After reading the comments, I am pretty sure I can’t do example c.
I am wondering if example A or B is still doable?
Harry Sit says
Yes but the HSA contribution has to be in Spouse 2’s name in both cases.
fay says
Thank you so much for your reply.
My employer also offers a PPO low deductible plan that does not include HRA.
Example D: Spouse 1 ” individual” PPO, Spouse 1 & Spouse 2 ” Family” HDHP/HSA
In this case , will the above scenario work?
Harry Sit says
It works but usually it costs money to cover a spouse in your cases B and D. For example my employer charges 3.2x the individual cost for employee + spouse coverage. Covering a spouse also makes the deductible higher in the HDHP. You will have to see whether the secondary coverage and the increase in HSA contribution limit are worth the extra cost and the higher deductible.
David says
Why does this need to be so complicated? I read about 10 articles, and still dont get which benefits me the employee: hra option 1, hra option 2 or hsa
fay says
Hi Harry,
It’s enrollment season again. I hope all is well.
I am expecting a baby next year and my husband and I are anticipating high medical expenses for next year. I am wondering if this will work.
Example E: Spouse 1& Spouse 2 “family” CDHP/HRA, Spouse 1 & Spouse 2 “Family” low deductible EPO.
Thank you.
Harry Sit says
Are you contemplating covering both spouses under both employers’ plans? Nothing stops you from doing so except the cost.
fay says
Yes, you are correct.
The cost is high.
Spouse 2 is required to use employer’s insurance as primary.
Example F: Spouse 1 & Spouse 2 & kid “family” CDHP/HRA +FSA, Spouse 2 HDHP but opted not to contribute to HSA next year
Will this work?
Harry Sit says
It works. Whether it’s the best depends on what the premiums, deductibles, and out-of-pocket maximums are, the estimated expenses for each person, how much employer HRA contribution you will get, and whether the HRA money can be used on persons not on the insurance plan associated with the HRA.
John says
Spouse 1 coverage: Spouse 1 and kids: PPO w/HRA
Can Spouse 2 enroll in HDHP and open an HSA in her name?
Harry Sit says
It depends on whether the HRA money can pay Spouse 2’s expenses. If it can, whether you actually use it to pay or not, Spouse 2 can enroll in HDHP but can’t contribute to HSA.
Dan W. says
So my wife, child, and I are covered by my employer’s HDHP/HRA. My work contributes 2500 to my HRA. I can contribute to an FSA but my employer mandates that we must exhaust our FSA account before we can tap into the employer funded HRA account to cover expenses. However, if my wife contributes to her FSA account through her employer, I would think that my employer would be blinded to our additional FSA account and therefore we would be able to exhaust the HRA prior to using the FSA. Is this correct and legal?
Harry Sit says
That’s correct and legal.
Jodi says
My situation is different and I cannot find anything that addresses it. My husband does not get insurance but he gets the HRA contribution. I have HDHP and an HSA. The managing company that handles the HRA money for my husband will not allow his money to be used for his medical expenses because I am contributing to the HSA. I could only use his money for dental and vision. He gets money we cannot use it for any of us. He was told by his employer that he could use it for all our decutibles. My husband is covered under my insurance. It does say that I could cover healthcare premiums. Does that mean that I can submitt the charges I have that come directly out of my check?
Jodi says
Also, is it corrrect? They will not allow the charges for medical when they are not suppling him with the medical insurance? I can see that I get to add more money to my HSA but I am paying the premium for his insurance. It almost seems like to utilize his monthly amount, we should take him off my insurance and get him his own. This way he gets to use his benefit.
Harry Sit says
Each employer sets the rules of their HRA. You would have to get clarification from his employer’s HR on what their HRA allows. It’s true some employers’ HRA is limited to reimburse only deductible and co-pays from that employer’s insurance.
Jodi says
Is it with IRS rules tha I can use his HRA for the deductible? Maybe the premiums that come out of my paycheck?
Harry Sit says
The premiums coming out your paychecks are already pre-tax. They can’t be reimbursed from the HRA. The IRS rules allow certain out-of-pocket expenses to be reimbursed from the HRA. The employer can’t be more liberal in allowing expenses that the IRS doesn’t allow but it can be more restrictive. Even if the IRS allows, the employer’s HRA doesn’t have to allow. So just pointing out that the IRS allows doesn’t work.
Jodi says
Can I still use his HRA to pay the deductible on my HSA HDHP since he is not given an HDHP with his employer?
Harry Sit says
See reply under comment 20.
Tim says
So I’m clear and sorry for this repetitive question. If I’m insured through my wife’s insurance, we can use HRA QUE from my current job to pay for the premiums????
Harry Sit says
No. You can confirm with your employer.
Joe says
Great website, thanks for all the info! For open enrollment, I am planning to put in $5,000 in a dependent care FSA (and $0 for my wife’s) to max out the family contribution since we expect to file as married jointly the following year. Let’s say that it turns out that it is better to file as married separately, but at that point the year ended and I contributed what became an excess $2,500 into my DC-FSA. At tax time, does this excess amount just get added to my taxable income as if it had not been contributed in the first place, or is there also an additional penalty?
We are pretty sure we will file as married joint, but in case there is a penalty, we may reconsider how to split the contributions (if there is no penalty, and it just gets added to taxable income, then we may go ahead as if we are likely filling married and if there is no penalty “downside”). Thanks!