Guess what? Employee benefits are expensive for both employers and employees. According to data collected through December 2017, it costs employers an average of $11.38 per hour per employee, on benefits. And a 2018 study by the Kaiser Family Foundation found the average worker paid $5,547 a year on health coverage premiums alone.
So, as an employer what can you do to help your employees while also helping yourself? Well, we have not one, but three, potential solutions to ease the cost of employee benefits. Through these savings accounts, your company can save your employees money without spending more yourself.
In this article, we’ll define a health savings account (HSA), a flexible spending account (FSA), and a health reimbursement account (HRA). Plus, we’ll breakdown each of these savings vehicles and the similarities and differences between the three. Keep reading to learn all about HSA vs FSA vs HRA savings vehicles.
HSA vs FSA vs HRA Defined
An HSA is an individual bank account to help employees save and pay for covered healthcare expenses and qualified medical expenses. FSAs are savings accounts that reimburse you for qualified medical expenses. An HRA is an account you can use to reimburse yourself for eligible expenses.
Download a PDF comparison table of these three savings vehicles: hra-hsa-fsa
How do You Get One?
1. HSA – You need to sign up for an HSA-eligible, high-deductible health plan.
2. FSA – Your employe has to offer a healthcare FSA.
3. HRA – These plans are typically tied to a health plan. You get an HRA when you enroll in the health plan.
Who Owns it?
1. HSA – The employee.
2. FSA – Your employer, but it’s your own money.
3. HRA – The employer.
Who can Contribute?
1. HSA – You. Your employer, family, and others can put money into the account if they choose.
2. FSA – You. Your employer can also contribute money into it if they choose.
3. HRA – Only your employer. You can’t contribute your own money.
How do You Make Contributions?
1. HSA – You can make deposits as you do with other personal bank accounts. Your employer and family can also deposit money. Also, your employer may allow you to deposit money straight from your paycheck, before it’s taxed.
2. FSA – Your employer will take money out of each paycheck, before taxes, and put it into the account.
3. HRA – Your employer may put all the money in the account at the beginning of the plan year or may do so each month.
What is the Cost of Employer Contributions?
1. HSA – 100 percent paid, regardless of utilization.
2. FSA – 100 percent paid, regardless of utilization.
3. HRA – Only pays for employee utilization (usually 75 percent).
What are the Contribution Limits?
1. HSA – $3,500 for single and $7,000 for families.
2. FSA – $2,700 per individual. Employers may elect a lower contribution limit.
3. HRA – Set by the employer.
How Does the Tax Code Treat it?
1. HSA – You don’t have to pay federal, and in most instances, state income taxes on:
- Deposits you or others make to an HSA
- The money you spend from an HSA on qualified medical expenses
- Interest earned from an HSA
If you put money into an HSA using pre-tax payroll deposits through your employer, you don’t have to pay social security taxes on it either.
2. FSA – You don’t have to pay federal, state, or Social Security taxes on this money. Also, you don’t have to pay federal income taxes on any money that’s reimbursed to you.
3. HRA – You don’t have to pay federal or state income taxes on this money.
What are the Eligibility Requirements?
1. HSA – Must have an HSA-eligible, high-deductible health plan.
2. FSA – All employees are eligible, who aren’t self-employed.
3. HRA – Every full-time employee with the possibility of including part-time employees. Owner eligibility is dependent on corporate structure.
Is Health Insurance Required?
1. HSA – Yes. You must purchase an HSA-qualified high-deductible health plan.
2. FSA – It depends. A limited purpose FSA doesn’t require the purchase of insurance, but you do need health insurance with a healthcare FSA.
3. HRA – No. But the purchase of minimum essential coverage allows you to receive reimbursements, free of income tax.
Can I Have Any Other Accounts With it?
1. HSA – Yes. You can have a limited-purpose FSA or limited-purpose HRA, which you can only use for eligible dental and vision services.
2. FSA – No.
3. HRA – No.
Can I Rollover Mony From Year-to-Year?
1. HSA – Any unused funds roll over to the following year, which allows the account to earn interest and grow.
2. FSA – There are three FSA options:
- Use it or lose it (all unspent funds are forfeited).
- Carryover of $500 maximum.
- A grace period of up to 2.5 months to use any leftover money.
3. HRA – It depends on the plan set up, but unused funds typically don’t roll over.
Who’s the Administrator?
1. HSA – The employee.
2. FSA – Employer or a third-party administrator.
3. HRA – Your employer or a third-party administrator.
Is it Portable After Termination?
1. HSA – Yes. There’s continued access to the unused account balance if an employee is no longer working for the employer.
2. FSA – No. You cannot maintain the account if the employee is no longer working for the employer.
3. HRA – No. You cannot maintain the account if the employee is no longer working for the employer.
The Wrap
In the battle of HSA vs FSA vs HRA, there are no losers, only winners. Regardless of which of these savings vehicles you choose, each can have a positive impact on the cost of employee benefits for both employees and employer.