HRA vs. HSA: What you need to know

Health reimbursement arrangements (HRAs) and health savings accounts (HSAs) are great tools for you and your employees to save money, and for your employees to prepare for potential medical expenses. For employers, HRAs or HSAs come with perks, including tax savings and increased employee retention.

We’ve outlined the key differences between an HRA and an HSA below so you can see how they work, the advantages of each, and if you should be offering one or both to your employees.

Health reimbursement arrangement

An HRA is an employer-funded benefits plan that employees use to save pre-tax dollars on medical costs. HRAs provide flexibility for employers and employees because:

• Employers design their HRAs to work with any health plan. You can customize your HRA, determining how much you want to contribute to it, what expenses are eligible, and whether or not funds can roll over to the next plan year.
• Employees are able to pair a health reimbursement arrangement with any group health plan. Those enrolled in an HSA or a medical flexible spending account (FSA) may also be able to enroll in certain types of HRAs.

We support flexible plan designs, empowering you to determine your own benefits goals for your participants by letting you set up your HRA to look however you want.

Health savings account

An HSA is a participant-owned account funded by you and/or your employees. HSAs have a triple-tax advantage, as in general distributions for qualified medical expenses and investment returns are tax-free, and contributions are tax-deductible.

If you offer an HSA, you’ll save money on your payroll tax bill, while employees see financial gains in a number of ways, including:

• Lower insurance premiums. Employees must be enrolled in an HSA-eligible health plan (or high-deductible health plan) to be eligible for an HSA.
• Investment potential. HSA funds can be invested in mutual funds as you would with a 401(k), which lets employees grow their dollars.

Our HSA comes with a low-investment threshold, and our integrated investment experience through your employees’ benefits mobile app and online accounts make it easy for participants to make the most of their funds.

Watch our video below for seven things you should know about HSAs!

Key differences between HRA vs. HSA

• Ownership: An HRA is owned by the employer, while an HSA is owned by the employee. 
• Contribution limits: In an HRA vs. HSA, the employer sets the HRA limit, some having limits such as coverage levels. In an HSA, in 2025, a single has a limit of $4,300 and family $8,550. 
• Flexibility: An HRA can be customized to meet an employer’s needs. You can determine which expenses will be reimbursable, and determine what kind of HRA plan aligns with your needs. With an HSA, the employee has more flexibility because it is managed by them. They can control how much money they set aside for healthcare costs and how much money in the HSA is spent.

HRAs vs. HSA and use-it-or-lose-it

There are some differences in how funds carry over from one year to the next with an HRA versus an HSA. With an HSA, all funds carry over from one plan year to the next. With an HRA, the employer determines the amount of funds, if any, that carry over from year to year. 

Contributions to HRAs vs. HSAs

Contributions to an HRA by an employer can also be excluded from employees’ gross income. Also, employees do not pay federal income tax or employment taxes on contributions to the account. The employer has no maximum annual limit on how much they can contribute to an account.

Contributions to an HSA made by the employer generally can be excluded from employees’ gross income. The employee can also invest their HSA funds once their HSA balance reaches the HSA’s investment threshold.

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This blog post was most recently updated in November 2024. 

The information in this blog post is for educational purposes only. It is not legal,tax or investment advice. For legal, tax or investment advice, you should consult your own legal counsel, tax and investment advisers. 

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