Healthcare Reimbursement Account (HRA)
An HRA is an account set up and funded by the employer to provide reimbursement for qualified medical expenses as defined in Section 213 of the Internal Revenue Code. If properly designed, HRA payments are tax-free to employees (and tax deductible to an employer that pays income taxes). HRA contributions cannot be based on age, compensation or years of service. Most employers will vary their HRA contributions based on the type of health insurance coverage chosen by the employee.
Similar to FSA, and HRA is subject to both COBRA and HIPPA. In addition, it is subject to the same claim substantiation rules as FSA's.
Health Savings Account (HSA)
A (HSA) is a qualified savings account set up by the employee to pay for qualified medical expenses as defined by Section 213 of the Internal Revenue Code. The account can be funded by the employee, employer or both. Employees fund the account through salary deduction on a pre-tax basis. As long as the money in the account is used for qualified medical expenses, there will be no income or FICA taxes applied.
Known as a good alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSA's enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSA's. An HDHP generally costs less than what traditional health care coverage costs, therefore, the money that you save on insurance can be put into the Health Savings Account.
You own and control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or health insurer. Depending on the HSA administrator, you may also decide what types of investments to use to grow your account.
High Deductible Health Plan (HDHP)
You must have an HDHP if you want to open an HSA. Sometimes referred to as a "catastrophic" health insurance plan, and HDHP is an inexpensive health insurance plan that generally does not pay for the first several thousand dollars of health care expenses (i.e., your "deductible") but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover. These plans are very flexible and can be designed specifically for your company.
Flexible Spending Accounts
An FSA is an account that can be set up by the employee as long as the company allows reimbursement accounts within their Section 125 Cafeteria Plan. This account is generally funded by the employee pre-tax through salary reduction. The account can also contain funds from the employer to purchase insurance or pay for qualified medical expenses as defined by Section 213 of Internal Revenue Code. Because FSA deposits escape federal income taxes and, in most cases Social Security and Medicare Taxes, participants can pay for medical care with pre-tax dollars, but they forfeit any unused funds at the end of each calendar year.