HRAs vs. HSAs

Navigating healthcare benefits can feel like a maze of acronyms, rules, and options. Among the most popular and powerful tools for managing medical expenses are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Both offer tax advantages and can help you save money on healthcare costs, but they function in different ways and have distinct eligibility requirements.

What Is an HRA?

A Health Reimbursement Arrangement (HRA) is a type of employer-funded account that reimburses employees for qualified medical expenses. Employees pay for medical services up-front and submit proof of payment to their employer, who then reimburses them with tax-free funds. HRAs are typically offered as part of a company’s benefits package, and the funds are provided by the employer, not the employee. There are several types of HRAs that organizations can implement. For example, companies can opt for plans like a standard or integrated HRA, an ICHRA, or a QSEHRA to suit the size of their business. 

Key Features of an HRA:

• Tax Benefits: Contributions made by the employer are tax-deductible for the company, and reimbursements to the employee for qualified medical expenses are tax-free. The employer sets the terms regarding what expenses the HRA can cover. For example, employers can choose to cover a wide range of services such as insurance premiums, doctor’s visits, prescriptions, medical devices, and dental work.
• Insurance Requirement: To enroll in an HRA, employees need a health insurance policy that qualifies them for the specific type of HRA offered by the company. For example, a standard or integrated HRA requires that an employee enroll with their employer's group plan while ICHRAs require health insurance through Marketplace.
• Contribution Limit: An employer’s contribution limit varies for differing types of HRAs. Standard HRAs and Individual Coverage Health Reimbursement Arrangements (ICHRAs) do not have maximum annual contribution limits. Conversely, Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) are geared toward small businesses, so they have annual maximums set by the IRS to help with cost coverage. For 2025, the IRS has set the maximum for self-only employees as $6,350 annually ($529.17 monthly). Similarly, the maximum for employees with households is $12,800 annually ($1,066.67 monthly).
• Rollover: If your employer's HRA offers a monthly allowance, unused HRA funds automatically roll over from month to month. Depending on the employer’s plan, some HRAs allow unused funds to roll over from year to year, but most require that funds be used within that calendar year.
• Transferability: HRAs are not portable. If you leave your job, you generally lose access to the coverage.

What Is an HSA?

A Health Savings Account (HSA) is a tax-advantaged bank account that allows individuals with a High Deductible Health Plan (HDHP) to set aside money for medical expenses. The money an employee contributes to an HSA is tax-deductible, grows tax-free, and can be used to pay for qualified medical expenses without being taxed when withdrawn. Some HSAs provide a debit card linked directly to the bank account for employee use. Otherwise, employees would transfer funds from their HSA account to their checking account for use. 

Key Features of an HSA:

• Tax Benefits: Contributions to an HSA are tax-deductible, and the account grows tax-free. Withdrawals used for qualified medical expenses (QME) are also tax-free. QME are determined by the IRS and change at their discretion. 
• Insurance Requirement: To open an HSA, you must be enrolled in a High Deductible Health Plan (HDHP), which typically has a higher deductible but lower monthly premium. For calendar year 2025, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,650 for self-only coverage or $3,300 for family coverage.
• Contribution Limits (2025): For individuals, the contribution limit is $4,300, and for families, it is $8,550. People 55 and older can contribute an additional $1,000 as a catch-up contribution.
• Rollover: Unused funds in your HSA roll over year after year. There is no "use-it-or-lose-it" rule like some other healthcare accounts.
• Transferability: The account belongs to you, not your employer, and it remains yours even if you change jobs or health plans.
  
  

Can HRAs and HSAs Work Together? 

Employees can enroll in HRAs and HSAs together, but there are important rules about how they work together.

To enroll in an HSA, employees must have a High Deductible Health Plan (HDHP). If an employee is enrolled in an integrated HRA or an ICHRA, it may disqualify them from contributing to an HSA because the IRS considers any health coverage other than the HDHP as a disqualifier for an HSA.

Additionally, only specific HRAs can be combined with an HSA. Limited Purpose HRAs (LPHRAs) are designed specifically for employees who also enroll in HSAs. An LPHRA only covers certain types of expenses that do not conflict with the qualified medical expenses covered by an HSA. Typically, an LPHRA covers things like dental expenses, vision expenses, and preventive care. Thus, an HRA can reimburse employees for eligible expenses that are not typically covered by an HSA like routine exams while the HSA can be used jointly for other qualified medical expenses like prescriptions. 

A traditional HRA that reimburses broader expenses such as deductibles, co-pays could not be classified as an LPHRA because it would disqualify the employee from contributing to an HSA. Moreover, the tax-free money from these benefits cannot be used for the same purposes. Technically, any employer could design an HRA to be "limited" in terms of what it covers, but the term "Limited Purpose HRA" typically refers to a plan that is specifically designed to complement an HSA.

Additional Resources

You can stay informed, educated, and up to date with important HR topics using BerniePortal’s comprehensive resources:

• BernieU—free online HR courses, approved for SHRM and HRCI recertification credit
• BerniePortal Blog—a one-stop shop for HR industry news
• HR Glossary—featuring the most common HR terms, acronyms, and compliance
• Resource Library—essential guides covering a comprehensive list of HR topics
• HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics
• Community—the HR Party of One Community forum, a place devoted to HR professionals to ask questions, learn more, and help others