| HSA | Health care FSA | HRA |
|---|---|---|---|
What does it stand for? | Health savings account | Health care flexible spending account | Health reimbursement arrangement |
Who owns it? | Employee | Employer | Employer |
Who funds the account? | Employee, employer and others | Typically by employee, but employer can contribute | Employer only |
What type of corresponding health plan is allowed? | Eligibility to contribute requires maintaining coverage under a qualifying high-deductible health plan. | A full-purpose health care FSA is compatible with any type of health plan coverage. A limited-purpose health care FSA is typically used in conjunction with an HSA and its qualifying high-deductible health plan. | An HRA is allowed with any type of health plan. |
Can unused amounts carry over? | Yes. The employee owns the account and any contributions made to it, regardless of the source or timing of the contribution. | Yes. Plan designs may allow a portion of unused funds to carry forward to future plan years. This is an optional plan feature. If the plan does not have a carryover, any remaining balance at the end of the plan year is forfeited. | Yes. The employer can choose to have unused funds roll over from year to year. However, rollover is not required. |
Can account funds be rolled over to a new employer? | Yes. The employee owns the account funds. | No. FSAs cannot be rolled over to a new employer. | No. An HRA may be designed to allow former employees to use their funds, but it cannot be rolled over to a new employer. |
Does the account earn interest? | Interest may accrue in an HSA, depending upon the custodian and the type of deposit account. | No. Interest does not accrue. | No. Interest does not accrue. |
Is the account subject to COBRA continuation? | No. COBRA rights do not apply. | Yes. COBRA rights apply. | Yes. COBRA rights apply. |
How is it funded? | Contributions can be made by the employee or employer, or any other person. Employee contributions are made through payroll or non-payroll contributions. | Employee contributions are made through payroll contributions. | Employers contribute a set amount on a scheduled basis. |
What is the contribution amount? | Annual contribution limits are set by the IRS and adjusted annually for inflation. | Annual contribution limits are set by the IRS and adjusted annually for Cost-of-Living Adjustments (COLA). Employers may elect a lower contribution limit. | No restrictions. The employer determines the contribution amounts. |
Is there a “catch-up” contribution provision for older workers? | Employees ages 55 and older may contribute more funds to their HSA each year until they enroll in Medicare. | Not available. | Not available. |
Can the account be funded with pre-tax payroll contributions? | Yes. | Yes. | No, employer funds only. |
Is vesting allowed? | No vesting. An HSA is a bank account owned by the employee. Funds are available as they accrue in the account. | No vesting. Funds are available on the first day of the plan year to eligible health care expenses. | The plan design may or may not impose a vesting schedule. |
What are the tax benefits for employees? | Employee contributions are exempt from federal tax, FICA taxes, and state taxes in most states. Interest earnings and investment earnings are also exempt from federal tax and taxes in most states. State taxes apply in some states. Withdrawals for qualified medical expenses are tax-free. | Employee contributions are exempt from federal and FICA tax as well as most state and local taxes. Reimbursements for qualified medical expenses are tax-free. | Reimbursements for eligible expenses are federal income tax-free. |
What health care expenses can be paid from the account? | Funds can be used for qualified medical, dental, vision, prescription, and over-the-counter expenses as defined under Section 213(d) of the Internal Revenue Code (IRC), except for health insurance premiums, with specific exceptions. Click here to use our qualified medical expense search tool to find out what expenses qualify.
| Full-purpose health care FSA funds can be used for eligible medical, dental, vision, prescription, and over-the-counter expenses as defined under Section 213(d) of the Internal Revenue Code (IRC), except for health insurance premiums. Click here to use our qualified medical expense search tool to find out what expenses qualify. | Funds can generally be used for eligible medical, dental, vision, prescription, and over-the-counter expenses as defined under Section 213(d) of the Internal Revenue Code (IRC). Click here to use our qualified medical expense search tool to find out what expenses qualify. |
Can funds be used for non-health care expenses for those UNDER age 65? | Yes. However, non-health care distributions must be included in gross income and are generally subject to a 20% penalty tax.* | No. Funds may only be used for eligible health care expenses. | No. Funds may only be used for eligible health care expenses. |
Can funds be used for non-health care expenses for those OVER age 65? | Yes. However, non-health care distributions must be included in gross income. After age 65, these distributions are not subject to the 20% penalty tax. | No. A health care FSA can only be used for eligible health care expenses. | No. Funds may only be used for eligible health care expenses. |
Can COBRA premiums be reimbursed from the account? | Yes. COBRA premiums may be reimbursed from the account. | No. No health insurance premiums may be reimbursed, including COBRA premiums. | Yes. COBRA premiums may be reimbursed from the account, if the plan allows it. |
Must a health care expense be incurred during the plan year the contribution is made? | No. However, reimbursements cannot be made for expenses incurred prior to the account being established. | Yes, if the plan does not have a grace period or carryover feature. | No. However, reimbursements cannot be made for expenses incurred prior to the account being established. |
Is the annual amount of the contribution available on the first day of coverage? | No. Only the amount currently available in the HSA may be used to pay or reimburse qualified expenses. | Yes. For health care FSAs, the total amount elected by the employee for the plan year must be available on the first day, regardless of the amount contributed. | Maybe. Funds availability varies by plan design. Funds may be available on the first day of the plan year, or may be prorated during the year. |
Is third-party substantiation of expenses required? | No. If audited by the IRS, the employee shows that HSA funds were used only for qualified medical expenses. | Yes. Each request for reimbursement must be substantiated before it can be reimbursed. | Yes. Each request for reimbursement must be substantiated before it can be reimbursed. |
Can the account be paired with other accounts? | Yes. An HSA can be paired with a limited-purpose health care FSA or limited-purpose HRA for use with eligible dental and vision expenses. | A limited-purpose health care FSA can be paired with an HSA. A full-purpose health care FSA can be paired with an HRA. | A limited-purpose HRA can be paired with an HSA. A full-purpose HRA can be paired with an FSA. |