HRA vs HSA: What is the difference?

Health Reimbursement Arrangements (HRA) and Health Savings Accounts (HSA) are both types of tax-advantaged accounts that can help individuals and families manage healthcare expenses, but they differ in terms of how they work, who can contribute, and how the funds can be used. Here's a comparison of HRA and HSA:

Health Reimbursement Arrangement (HRA):

1. How It Works: An HRA is established and funded by an employer. It's an employer-funded account that reimburses employees for qualified medical expenses.
2. Contributions: Only employers contribute to HRAs; employees do not contribute. The employer decides how much money is allocated to each employee's HRA.
3. Funds Usage:Employees can use the funds in their HRA to pay for eligible medical expenses, including copayments, deductibles, and qualified medical services. 
4. Rollover: The employer has the discretion to allow unused HRA funds to roll over from year to year, but this is not required.
5. Ownership: HRAs are owned by the employer, and employees generally cannot take the funds with them if they leave the company.
6. Portability: HRAs are not portable, meaning you lose access to the funds if you change jobs.

Health Savings Account (HSA):

1. How It Works: An HSA is an individually owned account that allows individuals to save money for qualified medical expenses.
2. Contributions: Both employers and employees can contribute to an HSA. There are annual contribution limits set by the IRS. 
3. Funds Usage: HSA funds can be used for qualified medical expenses, including deductibles, copayments, prescription drugs, and certain medical services.
4. Rollover: HSA funds can be rolled over from year to year. There's no "use it or lose it" rule.
5. Ownership: HSAs are individually owned accounts, so the account holder retains ownership even if they change jobs.
6. Portability: HSAs are portable. You can keep the HSA account and continue using it even if you change employers.
7. Investment Option: HSAs may allow you to invest the funds in the account, potentially allowing for growth over time.

Which One to Choose:

The choice between an HRA and HSA depends on your employment situation, financial needs, and the options offered by your employer:

- If your employer offers an HRA, you'll benefit from employer-funded reimbursements, but you won't be able to contribute your own funds.

- If your employer offers an HSA, you can benefit from both employer and employee contributions, and you'll have more control over the account even if you change jobs.

Both HRAs and HSAs have tax advantages, but the specifics of those advantages can vary. It's important to review the details of the plan, consider your anticipated healthcare needs, and consult with a financial advisor or benefits specialist before making a decision.