The Differences Between FSAs, HRAs, and HSAs

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Keeping your clients happy is about assisting them in finding the resources that work for them. In the health insurance sector, this means helping them choose between FSAs, HRAs, and HSAs. Each account has its own unique features, benefits, and drawbacks. As such, it’s vital that you know the ins and outs of each type in order to best help your clients. Explore the differences between FSAs, HRAs, and HSAs, and compare them side-by-side so you can make informed recommendations.

Flexible Spending Accounts (FSAs)

An FSA is a tax-advantaged savings account that allows employees to use pre-tax dollars for eligible healthcare expenses. Employers may also contribute to employee FSAs. FSAs are typically available only during open enrollment, and the funds expire at the end of the plan year, making it important for employees to plan their contributions carefully. These accounts can cover a variety of qualified medical expenses, including deductibles, copays, and prescriptions. One drawback to an FSA is the use-it or lose-it policy, where funds not utilized by year-end cannot roll over into the next.

Health Reimbursement Arrangements (HRAs)

An HRA, on the other hand, is an employer-funded account that reimburses employees for qualified medical expenses. Unlike an FSA, an HRA doesn’t have contribution limits, so employers are able to make more significant contributions toward employee healthcare needs. HRAs are compatible with several types of health insurance plans, including high-deductible health plans (HDHPs) and non-HDHPs, allowing greater flexibility for employers. The funds contributed are tax deductible for the employer, and benefits received aren’t considered taxable income to the employee. Unused funds roll over from year to year, making it an attractive option for many employers and employees.

Health Savings Accounts (HSAs)

HSAs are personal and portable savings accounts that allow employees to save and invest pre-tax or tax-deductible dollars for qualified medical expenses. HSAs, unlike FSAs and HRAs, must work in tandem with a high-deductible health plan. Employees can make contributions to their HSA accounts annually, and unused funds roll over to the next year. 

Employers can also contribute to employees’ HSA accounts, and the funds can pay for qualified medical expenses, including deductibles, copays, and prescriptions. An attractive and unique feature of HSAs is that account holders can invest their balances into various investment options, giving them an opportunity to grow the balance in the account.

Understanding the differences between FSAs, HRAs, and HSAs is critical for insurance brokers. These benefits provide employers and employees with greater flexibility in managing healthcare costs, but each comes with unique features and limitations. As you advise your clients on the best plans for their employees, keep in mind their goals and preferences and the characteristics of each option. At Warner Pacific, we provide a range of resources for you to utilize during this process. From exploring coverage options to supplying HR compliance solutions for brokers, we’re your leading partner for everything you could ever need in the insurance industry.