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Navigating HRAs and HSAs

When it comes to health insurance, much of the language used to describe plans and benefits can be confusing. Two of the most commonly confused plans are HRAs, or Health Reimbursement Arrangements, and HSAs, Health Savings Accounts. Here, the specialized insurance experts at Unity Insurance discuss the differences between HRAs and HSAs, and how you can navigate the complex terminology to ensure you and your employees are adequately covered. 

What Are the Main Differences Between HRAs and HSAs?

As you research health insurance for yourself or your employees as a business owner, it is important to do thorough research so that you feel confident making decisions that relate to coverage. An HRA is an account set up and funded by an employer to pay for eligible healthcare expenses, and any employee can reap the benefits of this plan as long as they meet the qualifications set forth by the employer. HSAs, however, are savings accounts that you own as an individual, compatible with a high-deductible health plan that you own to help pay for medical expenses. It is important to note that to open a HSA,  the individual must have a high-deductible health plan, or HDHP. This plan means that individuals will pay a higher cost upfront before their insurance begins to cover medical expenses, which when combined with an HSA, allows you to pay certain medical expenses with money free from federal taxes. 

Who Can Contribute, Transfer and Place Limits on HRAs and HSAs?

When considering opening an HRA or HSA, it is also vital that you understand the differences when it comes to contributions and transfers of the money. First, in an HRA, your employer owns the account, whereas in an HSA, you own the account. Moreover, HRAs only allow your employer to contribute, but in an HSA, you, your employer, your family and others can all contribute as well. While HSAs allow more individuals to contribute, there is a limit set by the IRS on how much can be placed into the account each year. HRA contribution limits are determined by the employer, and ultimately, may not have a cap. Finally, HRAs and HSAs differ in their transfer and rollover policies. With HRAs, there is no guarantee that the same amount will roll over into next year’s plan. An HRA account is not portable, and you cannot earn interest on it. With an HSA, there is a guarantee that the money will stay in your account, earns interest and is also portable if need be. 

What Happens When I Retire, and How Can I Use the Money?

While both benefits can be great for employees, there are some differentiating factors that employees and businesses should take into account. With an HRA, there are stricter limits on what the money can be used on, including medical expenses such as health insurance premiums, dental and vision, wellness/preventative care and long-term care expenses. With an HSA, you are able to withdraw the money at the age of 65, and will be subject to income tax only after that. HRAs and HSAs both have their benefits, and when considering insurance options, it is important to think about what will be most beneficial in the long run. HRAs and HSAs can be used at the same time if offered by the employer, but will be under restrictions from the IRS. 

Unity Insurance Can Provide Clarity for Businesses and Employees

When considering insurance policies and benefits as an employee or business owner, you may feel overwhelmed. It can be difficult to understand the nuances, restrictions and financial considerations for every insurance option, and having a team of professionals to guide you can ease anxiety. At Unity Insurance, our team has decades of experience assisting businesses and employees across Maryland with their insurance needs. To learn more about Unity Insurance and view our comprehensive list of services, contact our team today.