At first glance, Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs) look very similar, but there are significant differences.
First, let’s look at how the three accounts are alike:
- Employers can sponsor one, two, or all three for the benefit of their employees.
- All three were designed to ease the cost burden of eligible healthcare products and services.
- All three empower participants to take more control of their personal healthcare.
- All three provide tax advantages on contributions and withdrawals.
Drilling down further, this infographic highlights the major areas in which the three accounts are different:
Flexible Spending Account (FSA)
Funded by:
FSAs are entirely funded by the participant, but employers may choose to contribute.
Contribution limits:
FSA participants make pre-tax contributions, helping to lower payroll taxes for both the employer and participant. For 2025, the FSA maximum contribution is $3,300. See the IRS website for more details.
Eligible expenses:
Participants can use FSA funds to pay for a wide range of out-of-pocket medical expenses (approved by the IRS) for themselves and their dependents (i.e., children, spouses, etc.). Typical eligible expenses include prescriptions, eye care, dental care, and first aid supplies.
Rollover or Grace Period:
There are three options to address unspent FSA funds at the end of the plan year:
- “Use It or Lose It” – All unspent funds are forfeited at the plan year’s end.
- Carryover – Unspent funds up to 20% of the annual election limit ($660 for 2025) can be rolled over for use during the following plan year.
- Grace Period – Participants have up to 2.5 months of additional time beyond the plan year’s end to use any leftover funds.
Employers choose one of the above options, so participants should review the Summary Plan Document (SPD) to determine which applies.
Portability:
FSAs are not portable, which means participants cannot take unspent funds with them when employment is terminated, whether voluntarily or involuntarily. This is because the account is employer-owned.
Need to know!
FSAs have a “uniform coverage rule.” That means the total annual election amount is available on day one of the plan year. There’s no requirement to wait for the account balance to build up.
Health Reimbursement Arrangement (HRA)
Funded by:
An HRA is owned by and entirely funded by the employer. Participants are not allowed to contribute; the benefit amount received is not income.
Contribution limits:
The employer determines the contribution amount in the account each plan year. However, depending on the HRA plan type, there are some IRS maximums.
Eligible Expenses:
HRA funds can pay for qualified out-of-pocket medical expenses for participants and their dependents. The employer determines the list of eligible expenses (though they must be IRS-approved) and may vary from one company to the next.
You cannot use a traditional group health HRA to pay for health insurance premiums. Three other HRA types can cover insurance premiums:
- Individual Coverage HRA (ICHRA)
- Excepted Benefit HRA (EBHRA)
- Qualified Small Employer HRA (QSEHRA)
Rollover or Grace Period:
Depending on the plan setup, unused HRA funds may roll over.
Portability:
An HRA is employer-owned and not portable. When employment is terminated, the HRA funds stay with the employer. However, in the case of employment termination due to retirement, employers may set up a retirement HRA that allows continuation.
Need to know!
With an HRA, participants generally have to pay for the expense first and then file a claim for reimbursement.
Health Savings Account (HSA)
Funded by:
The participant owns and funds health savings accounts, but employers may contribute.
Contribution limits:
In 2025, participants may contribute a maximum $4,300 and families may contribute $8,550.
Eligible expenses:
HSA funds can pay for a wide range of IRS-approved out-of-pocket medical expenses. Approved expenses include doctor visits, prescriptions, eye care, and dental care. Participants can also pay for COBRA and long-term care premiums and Medicare Parts A and B.
Plan requirement:
Unlike an FSA or HRA, participants must enroll in a qualified high-deductible health plan (HDHP) to open an HSA and contribute. However, participants can continue using their existing HSA balance even if they are no longer enrolled in an HDHP plan.
Tax advantages:
HSAs offer a triple tax advantage:
- Contributions are not taxed
- Withdrawals for qualified medical expenses are not taxed
- The accounts can earn interest and investment earnings, which are not taxed
Rollover or Grace Period:
At the end of the year, any unused funds roll over to the following year, allowing the account to grow.
Investment:
Participants may invest their HSA dollars once they meet a minimum threshold (the threshold amount varies by plan provider). There is no investment option with an FSA or HRA.
Portability:
An HSA stays with the participant for the life of the account, even if employment is terminated.
Need to know!
- Catch-up contributions: Beginning with the year account owners turn 55, they can contribute an additional $1,000 per year over the annual limit.
- At age 65, account owners can use their HSA for non-medical expenses, and that money is treated as income (taxed but not penalized).
For 40 years, DataPath has been a pivotal force in the employee benefits, financial services, and insurance industries. The company’s flagship DataPath Summit platform offers an integrated solution for managing CDH, HSA, Well-Being, COBRA, and Billing. Through its partnership with Accelergent Growth Solutions, DataPath also offers expert BPO services, automation, outsourced customer service, and award-winning marketing services.