What Is an HSA? | BerniePortal

A Health Savings Account (HSA) is a personal bank account that allows employees to set aside pre-tax dollars for qualified medical expenses. HSAs must be paired with eligible high deductible health plans (HDHPs).

Both employees and their employers can contribute to an HSA, but the IRS does limit total contributions to any individual account each year. In other words, the more an employee contributes, the less the employer can, and vice versa. The IRS typically increases the HSA contribution limit and HDHP minimum deductible threshold each year. 

To improve recruitment and retention, employers often offer fringe benefits like HSAs and FSAs during open enrollment. These benefits can help employees save significantly on qualified medical expenses not covered by their health insurance.

Here's what you need to know about HSAs, including how they differ from HRAs.

Do HSA Funds Roll Over to the Next Year?

Yes, HSAs roll over from year to year, making them an excellent investment for younger, healthier employees who may not need to pay as much for healthcare now as later. HSAs are also portable, which means an employee can take their funds with them when they leave employment.

Speaking of investments, employees can invest their HSA funds in interest-bearing accounts for qualified medical expenses in the future. Individuals should keep in mind, however, that most banks that manage HSAs require a minimum investment, usually $1000.

What are the Tax-Free Advantages of an HSA?

The tax-free advantage of HSAs is another reason why they are such a popular benefit. It essentially means that employees can save about 30% on qualified medical expenses, such as copays, prescription medications, physical therapy, and certain healthcare products. For a complete list of qualified medical expenses, check out the IRS’s Publication 502.

What’s the Difference Between an HSA and an HRA?

Similarly, HSAs are sometimes confused with HRAs (Health Reimbursement Arrangements), but they also differ in important ways:

1. Again, HSAs must be paired with an HDHP, but HRAs have no such requirement. In fact, an HRA may be the employer’s only health plan. 
2. Unlike HRAs, HSA funds cannot be used to pay for health insurance premiums.
3. Unused HRA funds usually rollover from year to year but the rollover amount can be limited by the employer who owns it. HSAs, however, do not have a rollover amount limit.
4. Finally, HRAs are not portable, but HSAs are owned by the individual, who can use those funds even after they’ve left employment.

Again, you may be wondering if an employee can have an HRA and an HSA at the same time. Under certain circumstances, the answer is yes, but the HRA must be “HSA-qualified.” This means the HRA does not provide coverage below the IRS-mandated deductible level for HSAs.

For information on the differences between HSAs and FSAs check out What Is an FSA?

Additional Resources

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