Employee Benefits
A great way to save money on medical expenses? Pre-tax savings and spending accounts.
That’s why employers often offer specialized accounts, like health reimbursement arrangements (HRAs) and health savings accounts (HSAs).
Both types of accounts can help an employee pay for medical care, but there are some key differences. For example, an HRA is owned and funded by an employer, while you own your HSA. You can also take your HSA with you when you leave your job, but that option isn’t available for HRAs.
Here are important details to know about HRAs vs. HSAs, including which may be right for you.
HRA | HSA | |
Who’s eligible? | Employees whose employers offer HRAs and who can meet employer-specific eligibility requirements | Individuals with an HDHP who can meet all IRS-specific eligibility requirements |
Who owns the account? | Employers | Individuals account holders |
Who can contribute? | Only employers | Both individuals and employers, as well as spouses and family members of the account holder |
What is the maximum contribution amount? | There are no maximum annual contribution limits for standard HRAs and ICHRAs, but QSEHRAs and EBHRAs have annual limits set by the IRS.1 | Annual limits are set by the IRS. For 2023, health contribution limits are $3,850 for individuals and $7,750 for families.2 |
Does it earn interest? | No | Yes |
Does the money roll over year-to-year? | Typically no, but an employer can allow it | Yes |
Is the account portable if you change jobs? | Typically no, but an employer may allow you to use remaining funds | Yes |
An HRA is a type of account that reimburses employees for qualified medical expenses, such as deductibles and prescriptions. HRAs are employer-owned-and-funded plans and are offered as part of an employer-sponsored group health insurance plan. Only an employer can put money into an HRA, and employers set contribution and rollover limits. Because HRAs are owned by an employer, employees typically lose these funds if they leave the company.
Contributions to an HRA aren’t taxed, and employees can only withdraw the money for qualified health-related expenses. Depending on the employer, some HRAs can also be used to reimburse health, vision, and dental insurance premiums.
There are several types of HRAs an employer might offer its employees. Some of the most common include:
Some advantages of an HRA include:
An HSA — not to be confused with a flexible spending account (FSA) — is a tax-advantaged savings account designed to help cover out-of-pocket qualified medical expenses. To qualify for an HSA, account holders must be enrolled in a high deductible health plan (HDHP). HSAs are owned by an individual and not an employer, but both an employer and employee can contribute to the account.
Contributions are limited to an annual maximum dictated by the government. The funds saved in an HSA are portable — meaning you take them with you if you retire or leave your job. They also carry over into the next year.
Employers who offer HDHPs might offer HSAs as part of their employee benefits package. However, individuals can also purchase their own HSA in the private marketplace. Employed, self-employed, and unemployed individuals can all contribute to an HSA, as long as they meet the following eligibility requirements:
Some advantages of an HSA include:
To choose between an HRA or HSA, consider your specific needs and circumstances. First, figure out if you meet the basic eligibility requirements, like being enrolled in an HDHP or meeting specific employer mandates.
Then, try to determine what you’ll need out of your health account for the year. If you select an HDHP, for instance, you’ll potentially have costly deductibles to pay when you need medical treatment. But that HSA can help pay for some of those costs. Or maybe you want to use your account to help save for retirement. After you turn 65, you can use your HSA funds for medical expenses in retirement. You can even use it on non-medical expenses, like buying groceries, without penalty — however, federal and state taxes still apply to those distributions. But if you can’t reasonably afford to put your own money into an HSA, or you don't have the financial means to pay the high deductibles that you may incur with an HDHP, an HRA may be a better option.
Keep in mind that in some cases, an employee can have both an HRA and an HSA. Consult with your employer to help you weigh all your options.
1 “Health Reimbursement Arrangements (HRAs): Overview and Related History, March 7, 2022
https://crsreports.congress.gov/product/pdf/R/R47041
2 “26 CFR 601.602: Tax forms and instructions” https://www.irs.gov/pub/irs-drop/rp-22-24.pdf
3 “What's an individual coverage Health Reimbursement Arrangement (HRA)?” HealthCare.gov
“Health Savings Accounts and Other Tax-Favored Health Plans” IRS, 2022
Nothing in these materials is intended to apply to a particular individual's financial situation.
This article is intended to provide general information about insurance. It does not describe any Metropolitan Life Insurance company product or feature.