What are the Differences Between FSAs, HSAs, and HRAs?

Posted by Amanda on February 4, 2014

I didn’t really see the need to figure out the difference between these three health accounts until my husband lost his job. Suddenly, I was quite interested in what was going to happen to the $1200+ or so that was in our Health Reimbursement Accounts.

When I learned that we would not have access to that account after losing our health insurance at the end of the month, my curiosity was peaked. Why not? And how are these accounts different from Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs)? Here is a closer look at FSA vs HSA vs HRA.

Flexible Spending Accounts (FSAs)

You can think of an FSA as a medical bank account with tax advantages. If your employer offers this type of plan, then you can elect to fund your FSA with a lump sum of money that will be taken out of your paycheck (before taxes) in consistent increments over the next 12 months. Even though it takes a year to fund it fully, the entire lump sum is available for you to spend from day one.

With FSAs, you must use the amount in your account by the end of the year, or you will lose it all together. Claims can be submitted for qualified medical expenses, which are things such as over-the-counter medications, massage therapy, acupuncture, adoption fees, and so much more.  Finally, qualified reimbursements from this account are not taxable.
 

  • How FSAs are Handled in Unemployment: Even though you may have been laid off, you generally don’t get to use the money in your account after termination. However, there is generally a grace period for you to submit claims. If you are laid off, you generally lose your health insurance at the end of the month. So take the time to book doctor appointments and make medical purchases that can be reimbursed (verify first that you can make new claims within the last days of your health insurance coverage). An interesting thing that might happen to you is if you already used all of the money in there but have not finished contributing the full amount, then the employer cannot recoup the difference from the employee. If your company offers COBRA, then they must offer a COBRA FSA plan as well.

Health Savings Accounts (HSAs) 

If you are in a High-Deductible Health Plan, then chances are you have an HSA. You and your family can contribute money to this account pre-tax in order to spend on qualified medical expenses. Unlike an FSA, you do not have to spend your HSA money in the year in which the money has been funded.

With the healthcare reform laws, you can no longer use an HSA to get reimbursed for over-the-counter medications (unless you have a doctor’s prescription).
 

  • How HSAs are Handled in Unemployment: In unemployment, you can continue using this money towards health expenses. This makes sense, as the money came out of your paycheck to begin with. Also, if you receive unemployment insurance then you can use the cost of insurance premiums as a reimbursable expense. Note that unless you are of the age of 65, become permanently and totally disabled, or die, you cannot take a cash payout from your HSA without incurring a penalty for doing so. The penalty (on top of paying income taxes on the cash) is 20%.

Health Reimbursement Accounts (HRAs)

An HRA is an account that your employer puts money into for you to use in the event of medical reimbursements for expense that are not covered by their health insurance plan (normally a high-deductible plan). An employee cannot be reimbursed until an expense is incurred. Some employers will even let you use the money to pay for your health insurance premium, or co-insurance amounts.

One of the downsides is that the employer can decide to cancel a plan at any time. Funds can generally be carried over, but this is also up to your employer (some only allow a certain amount of reimbursable expense each month).
 

  • How HRAs are Handled in Unemployment: Unfortunately, you do not get to keep the benefits (an unpleasant surprise for us). This is because the money was your employer’s to begin with. If you have an HRA, then you will want to submit as many reimbursable health expenses as possible in the month you become unemployed as you can in order to take full advantage of a benefit you are about to lose.

Do you have one of these medical banking accounts? How have they worked for you in keeping your health insurance costs as low as possible?

More on Health Accounts





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Comments to What are the Differences Between FSAs, HSAs, and HRAs?

  1. Hi –

    Regarding FSA’s, the IRS made a revision and now instead of “use it or lose it” companies can allow a $500 carryover. This is for health FSA’s only, not dependent care FSA’s. Participants should check their plan to be sure a change was made.

    Amy

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