Account Based Plans

Health Savings Account (HSA)

An HSA is a type of savings account that lets you add money to it on a pre-tax basis. The money deposited is untaxed and can only be used to pay for qualified medical expenses such as deductibles, copayments, coinsurance, and other qualified medical expenses. HSA funds generally may not be used to pay premiums.

Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement (or Account) is another kind of tax advantaged health spending account provided and owned by an employer. Employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount annually. Unused amounts may be rolled over to be used in subsequent years. The employer funds and owns the arrangement.

Key things to know about HRAs are:

• Only an employer can put money in an HRA
• Money that comes from an HRA is not taxed
• The employer decides whether to let unused funds roll over from one year to the next

In general, employers have more say in how HRAs work and have more options to choose from compared to other health spending accounts. Employers decide what an HRA will pay for and can also decide when it pays by selecting a specific plan design. A couple of examples could be:

• The HRA pays first - The funds in the account are used until gone then the employee pays expenses that a health plan plan doesn’t cover.

• The employee pays first – Expenses not covered by a health plan are paid by the employee until an amount set by the employer is reached, then the HRA pays.

Flexible Spending Account (FSA)

A Flexible Spending Account (or Arrangement) is a type of tax-advantaged account that allows enrolled employees to use pre-tax dollars to pay for qualified expenses. 

There are 3 types of FSAs:

1. Health Care FSA (sometimes called a “Medical FSA”) – Qualified expenses include medical, pharmacy, dental and optometry expenses. 
2. Dependent Care FSA – Qualified expenses include day care, elder care, preschool and day camp.
3. Limited Purpose FSA – Qualified expenses include dental and vision costs.

Key things to know about FSAs are:

• The employer provides and owns the account
• Only the employee and employer can put money in an FSA, up to a limit set each year by the IRS.
• FSAs are a “use it or lose it” account; employers can keep funds that employees haven’t used by the end of the year.
• FSAs give employers the most options when deciding on what spending accounts to offer.

Learn more about account based plans.