A health reimbursement account (HRA) and a health savings account (HSA) are both financial accounts dedicated for medical expenses. They each offer employees in Massachusetts and other states tax benefits and encourage employees to be aware of their medical expenses, but these two types of accounts differ in several significant ways.
How is a Health Reimbursement Account Offered by a Employer and a Health Savings Account Different?
A Health Reimbursement Account is an Employer-Funded Account
A health reimbursement account is an employer-funded account that reimburses employees for qualified medical expenses. Many Massachusetts employers offer and make contributions to these kinds of account.
Employers invest money in their employees’ accounts, usually at the beginning of the year. The money then rolls over month to month, and employees can submit receipts for medical expenses to receive reimbursements. The reimbursements aren’t taxed.
At the end of the year, any funds remaining in employees’ accounts can be rolled over -- but they’re credited to the employer and not the employee. Funds that are returned to employers’ accounts can typically be applied to the following years’ contributions, thus reducing an employer’s cost.
Identifying a specific annual contribution limit for HRAs is difficult. Contributions can vary according to family status, and not all employers must follow the same rules. Additionally, the healthcare laws are frequently being reviewed.
Nevertheless, a new law that went into effect on January 1, 2017 provides a glimpse of the sorts of contribution limits that HRAs come with. The 21st Century Cures Act created a new kind of HRA, the qualified small employer health reimbursement arrangement (QSEHRA). For 2017, these HRAs have annual contribution limits of $4,950 for single coverage and $10,000 for family coverage. Contribution limits for other HRAs may vary, and these limits will change year-to-year as they’re adjusted for inflation.
When compared to HSAs, HRAs noteworthy items include that they:
Are only employer-funded, with employees not making contributions
Normally have annual contribution limits close to $5,000 for individuals and $10,000 for families
Don’t roll over year-to-year for employees, and employers can usually apply unused funds to the following year’s contributions
Don’t have to be directly linked to a health insurance plan
A Health Savings Account
A health savings account is an account that’s established by an individual (e.g. an employee) and linked to a qualified high-deductible health insurance plan. These also are offered by a number of employers in the state.
Both employers and employees may make contributions to HSAs. Contributions are made with pre-tax income, so these accounts offer tax benefits similar to those provided by HRAs. As contributions accumulate, funds in HSAs roll over both month-to-month and year-to-year.
When employees have qualifying medical expenses, they can pay the bills using funds from their HSAs.
The contribution limits for HSAs are set annually. In 2017, employer and employee contributions combined can total $3,400 for individuals and $6,750 for families. People 55 and older can make an additional $1,000 worth of “catch-up” contributions.
When compared to HRAs, HSAs noteworthy differences include:
Both employers and employees can make contributions to HSAs
At $3,400 and $6,750, contribution limits for HSAs are lower
Funds in HSAs can roll over year-to-year
HSAs must be linked with high-deductible health insurance plans
Get Help Setting Up a Benefits Package for Your Business’ Employees
A health reimbursement account and a health savings account can each play an important role in an employee’s benefits package. In fact, some businesses choose to make contributions to both. For help determining which to provide your Massachusetts business’ employees with, talk with an experienced professional who specializes in group benefits. They can explain in detail the costs of each and set you up with the accounts you want to offer to your employees.