Difference Between HRA and HSA (With Table)

To ensure that we have a safe and sound future, we also have to make arrangements at present that are crucial. One such arrangement is insurance- it can make our lives considerably easier when the time comes. One aspect of insurance that has gained quite the attention is health insurance. To purchase health insurance, one should be aware of the differences between an HRA and HAS.

HRA vs HSA

The difference between HRA and HSA is that while both happen to be two types of health insurance that one can afford, while the former is based on an employer-employee relation, the latter is insurance over which you have complete control and autonomy. While the previous insurance is an insurance scheme wherein one’s employer deposits a certain amount, but that amount is forfeited by the employer once you quit your job, the latter is an insurance scheme in which you have complete ownership of the insurance.

HRA is an acronym that is given to the health plan called Health Reimbursement Arrangement. This is based on an employer-employee relationship. It is an insurance scheme wherein one’s employer deposits a certain amount, but that amount is forfeited by the employer once you quit your job. It is an account that is created to meet with medical expenses that an employee suffers during his employment with the employer.

On the other hand, HSA (Health Savings Account) is a health plan that is not available to all but only to a certain category. This is an individual account, and the owner has complete control over it. The person availing it should have a high-deductible health plan. Certain caps are set on the amount of contribution that can be made by the individual.

Comparison Table Between HRA and HSA

Parameters of ComparisonHRAHSA
Full formsHealth Reimbursement ArrangementHealth Savings Account
EligibilityOne should be the employee in an employer-employee relationshipOne should be enrolled in the High-Deductible Health Plan
Ownership and ControlThe employer contributes to the account; therefore, he has ownership of the account.  The one availing the health-benefit plan has ownership and control of the account.
SponsorIn this case, the employer contributes to the account on behalf of his employee.In this case, the employee himself affords the plan
Tax benefitsNot very highLow premium rate and has higher tax-deductibles

What is HRA?

HRA is an acronym that is given to the health plan called Health Reimbursement Arrangement. This is based on an employer-employee relationship. It is an account that is created to meet with medical expenses that an employee suffers during his employment with the employer.

It is an insurance scheme wherein one’s employer deposits a certain amount, but that amount is forfeited by the employer once you quit your job. In other words, this account remains in effect for the duration of the employee’s employment. Once the employment comes to an end, the account no longer stays functional to meet the employee’s medical expenses.

It is exceedingly advantageous for the employee as it is the employer who will have to cover all the medical expenses. However, there is a specified limit to it.

In this case, the employer contributes to the account on behalf of his employee, thereby becoming his sponsor. As the employer owns the account, the employee cannot make any withdrawals from the account.

It is noteworthy that in this plan, the employers can change the amount of their contribution to the account under certain circumstances. Another disadvantage is that the employee cannot earn any interest on the account.

What is HSA?

HSA (Health Savings Account) is a health plan that is not available to all but only to a certain category. This is an individual account, and the owner has complete control over it.

Therefore, the eligibility criteria are that not only should the person be employed, but he should also have a high-deductible health plan, and only then will the person availing it be in a position to create an account and make regular contributions to it.

This plan puts the owner in a lucrative position. This is because not only are the expenses for a blood-sugar test, x-ray, or a dental exam covered by it, but it also covers the expenses incurred in ambulance services.

Certain caps are set on the amount of contribution that can be made by the individual.

Here, since the contributions are made by the employee himself, he has complete control over the account and is, therefore, the account owner. Furthermore, if the person has not reached his yearly limit, then the unused amount is carried forward to the following year.

What makes this account a real winner is a fact that the interest that you earn on it goes tax-free. To add a cherry to the cake, if the employee ends up losing his job and gets employed at a new place, he can still retain the account and continue to reap its benefits.

Main Differences Between HRA and HSA

  1. HRA demands the presence of an employer-employee relationship. On the other hand, this criterion is absent in the case of an HSA. Instead, the person availing it should be employed and have a high-deductible health plan.
  2. The medical expenses that are covered by HRA are limited. In contrast, the medical expenses that are covered by an HSA are vast.
  3. The person who regularly contributes to the account in the case of HRA is the employee. Whereas the person who regularly contributes to the account in the case of HSA is the person availing the plan himself.
  4. While the employer happens to be the owner and the controller of the account in the case of HRA, the person availing the plan himself is the owner and controller of the account in the case of HSA.
  5. The employee earns no interest in the account in HRA. However, in HSA, the account-holder earns an interest.

Conclusion

There are a plethora of insurances that one can avail of today. But amongst the vast number of insurances that are available to us, health insurance is far too crucial. Therefore, it is also of utmost importance to be well-versed with them. The most common ones are- the HRA and HSA. While both happen to be two types of health insurance that one can afford, while the former is based on an employer-employee relation, the latter is insurance over which you have complete control and autonomy.

While the previous insurance is an insurance scheme wherein one’s employer deposits a certain amount, but that amount is forfeited by the employer once you quit your job, the latter is an insurance scheme in which you have complete ownership of the insurance. They indeed have their own set of differences, but one cannot negate the fact that they also share certain similarities. For instance, both are medical expenses that can be claimed only if one meets the specified requirements. In addition, funds in both the accounts can be carried forward to the following year if one does not exceed the limit in the preceding year.

References

  1. https://scholarship.tricolib.brynmawr.edu/handle/10066/22568
  2. https://www.actuary.org/sites/default/files/files/public/pdf/health/hsa_oct07.pdf
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