First, let’s start from the beginning. It's easy to get the terms 'health savings account (HSA)' and 'health reimbursement account (HRA)' confused. The main difference between the two is their owners.
HSA: Owned by an individual and can funded by the employee and employer. This can be taken with the employee if they switch jobs.
Money is placed into an HSA account as it is contributed. It is a tax-advantage plan. The money can be used for medical expenses.
HRA: Owned by the employer, funded by the employer. This is typically not transferable between jobs.*
Money is available at the beginning of the year, made possible by the employer. This tax-advantage plan money can be used to reimburse an employee for out-of-pocket medical expenses.
*HRAs can be provided to former employees and retirees. In these special cases it could technically be transferred between jobs.
Now the question remains, can I have an HSA and an HRA?
Yes, if you have a qualified high deductible health plan (HDHP).
That’s where a post-deductible HRA comes into play.
- You and your benefits broker can start by purchasing the highest deductible HSA plan to provide best premium savings using IRS maximums.
- A post-deductible HRA is considered a high-deductible insurance product. Add that and it will begin when your minimum deductible standard is met.
- Minimums are $1,300 single/$2,600 family
- See the graph for a single coverage deductible example.
If you have an HSA-qualified medical plan and make your HRA HSA-qualified, you’re all set.
Why do I want a post-deductible HRA and HSA?
There are many advantages! Here are a few:
- Tax-free HSA contributions (employer and employee)
- Employer HSA contributions and HRA reimbursements can be declared as a business expense
- Employer limited liability - very few employees will reach out-of-pocket medical expenses that require an HRA reimbursement
- Employee protection for catastrophic expenses
Depending on your plan provider, administration can be simple as well. For example, PrimePay clients receive a debit card for easy transactions.