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Can You Have an HSA and HRA at the Same Time?

Can You Have an HSA and HRA at the Same Time?

A common question many people ask is “Can I have an HRA and an HSA at the same time?” The answer is yes. The primary difference lies in the ownership of the account. An HSA is typically owned by an employee while an HRA is typically owned by an employer. Read on to learn more about the difference between HRAs and HSAs, and how you can manage them together. 

 

What is the Difference Between an HRA and an HSA?

If an employee were to leave an organization then they would take their HSA along with them. However their HRA would remain with the company, and they would lose any available funds. 

Another difference between HRAs and HSAs is in the matter of funding. While an HSA can be funded by both the employee and the employer, an HRA may only be funded by an employer. Additionally, when an employer funds an HRA the money is available immediately in the account, to be used upfront. The HSA on the other hand is primarily funded on a monthly, quarterly, or annual basis. The employee is primarily responsible for funding the HSA. That said, an employer is eligible to fund the HSA as well should they choose to do so, and they will also fund at a monthly, quarterly, or annual rate.

In order to have both an HSA and an HRA, the HRA needs to be “HSA qualified.” Employers need to ensure that their HRAs are HSA qualified. If they are not, then employees will be ineligible for an HSA. 

 

How Can an HRA be Made HSA-Qualified?

An HRA is HSA-qualified as long as it does not provide coverage below the IRS-mandated deductible level for HSAs except for expenses related to things like:

  • Wellness/preventive care (e.g. checkups, mammograms, smoking cessation, weight loss)

  • Dental care

  • Vision care

In 2022, the minimum deductible an insurance policy can have and still be HSA-qualified is $1,400 for individual coverage and $2,800 for family coverage. Above those deductible levels, an HRA can reimburse for all qualified medical expenses ( even beyond preventive care, dental, and vision), and still be HSA-qualified.

 

Here Is an Example of How It Works

Smith Water Heaters Plan Design

  • Deducible: $2,500

  • 80% Coinsurance

  • $5,000 Out-of-pocket Maximum

  • Post-deductible HRA funding of $2,500

  • $1,000 contribution to Employee HSAs

Total Hospital Bills: $12,000

  • John Pays: $2,500 (deducible)

  • Insurance company pays: $9,500 * 80% = $7,600

  • HRA pays: $9,500 * 20% = $1,900

Following both payments, the insurance company credits John as having paid $4,400 towards his $5,000 out-of-pocket maximum. This includes the $2,500 he paid toward the deductible as well as the $1,900 paid by his HRA above the deductible. 

John is eligible to pay his $2,500 deductible from his HSA, which would mean $1,000 of that came from his employer, and the other $1,500 he was able to pay for tax-free.

The insurance company credited John $4,400 towards his out-of-pocket maximum, which means that John still has $600 before he hits the deductible threshold. Once he reaches this point his insurance company would begin paying for 100% of his expenses. His HRA, which started with a balance of $2,500, still has $600 available. He can then utilize his $600 to pay any remaining balance or future expenses, which would go toward his out-of-pocket maximum. 

This means that John's employer's HRA is providing him 100% coverage above his deductible. This scenario often begs the question—why doesn't John's employer purchase an insurance policy that has 100% coverage in the first place?

The reason many employers utilize this method is that the insurance companies give large breaks on premium costs should the employer purchase an 80% plan as opposed to a 100% plan. Those lower premiums allow the employer to set up an HRA and simply reimburse any expenses over the deductible. 

With these premium savings, employers are able to help employees in other ways, such as making larger contributions to their HSAs.

As you can see, utilizing both HSAs and HRAs is certainly possible. In fact, it can actually offer you more plan flexibility, more savings, as well as better benefits.

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