If your company is thinking about offering an HRA or HSA as a way to reduce costs, we’ve got news for you: there are much more effective ways to reduce costs and improve benefits, and these opportunities should be explored before HRA’s or HSA’s are considered.
With that being said, there are situations where it makes sense to offer an HRA or HSA. But what’s the difference between these two healthcare savings plans? Which is better for your employees and your company?
Defining HRAs and HSAs
Not to be confused with a flexible spending account (FSA), an HSA, or health savings account, is a savings account specifically linked to a qualified high deductible health plan (HDHP). It’s meant to help offset the higher out-of-pocket expenses that potentially come with plans of this design.
An HRA, on the other hand, is a health reimbursement account, an unfunded notional account owned by the employer that only the employer can fund. It also is designed to help employees pay for qualified medical expenses.
Unlike an HSA, there are no limits to the amount an employer can contribute to an HRA.
The Benefits of Offering an HSA or HRA
HRAs and HSAs share several key benefits:
- Turn-key participation
- Employer contributions
- Promotes healthcare
- Promotes consumerism
- Plan Level distinctions
The Advantages of an HSA
The HSA can be an excellent option for both the employer and employees:
- Lower premiums
- Roll-over of unspent balances
- Compound growth opportunities
- More engaged employees (HSA enrollees manage an account which isn’t “use it or lose it”, which incentivizes them to become more educated healthcare consumers)
- Easier/cheaper to administer than HRAs
The Advantages of an HRA
HRAs also have several great things going for them:
- Unlimited contributions (unlike HSAs)
- Various reimbursement options
- Recouping of contributions (Employees can roll over unused funds, no matter who contributed them)
- Encouragement of health spending
- Available with more plans
- Fewer eligibility restrictions
- Payment of premiums (IRS rules allow the use of HRA funds for health insurance premiums, long-term care coverage, and qualified medical expenses not covered under another health plan)
Which One is Better?
You don’t have to pick one. You can offer employees an HRA and an HSA. Educate your workforce on their options with detailed benefit guides, videos offering explanations, open enrollment meetings, and other methods in your broker’s communications toolkit.
In other instances, you may find that choosing a single method for offsetting employee healthcare expenses is best. Your employee benefits broker can (and should) walk you through several other considerations.
Remember, offering and contributing to an HSA or HRA for your employees will help offset their out-of-pocket healthcare expenses while they come to appreciate the true cost of healthcare.