FSA, HRA and HSA Explained
Flexible Spending Account (FSA)
A flexible spending account (FSA) is an employee and/or employer-funded account for qualifying medical expenses. General any size group can qualify. Contributions are tax deductible when paid to the participant to reimburse an expense. As a result of salary reductions, lower adjusted employee income reduces employer matching FICA. A health FSA is not subject to a minimum deductible. A health FSA may be offered in conjunction with a high deductible health plan; however, the deductible amount is established by employer.
Health Reimbursement Arrangement (HRA)
A health reimbursement arrangement (HRA) is an employer-funded medical expense reimbursement plan for qualifying medical expenses. IRS regulations affect the plan design of many HRAs. General any size group can qualify (Only common-law employees can participate on a tax-free basis.) Contributions are tax deductible when paid to the participant to reimburse an expense. Reimbursements for eligible expenses are excluded from income. Generally, an HRA is not subject to a minimum deductible. An HRA may be integrated with a high deductible health plan; however, deductible amount is established by employer.
Health Savings Account (HSA)
A health savings account (HSA) is an employer and/or employee-funded account in the employee’s name (eligible individual) for current and future medical expenses – requires a qualifying high deductible health plan (HDHP) and a qualified trustee or custodian. Other individuals may also contribute funds on behalf of the account holder. Generally any size employer can qualify (Only eligible individuals can establish an HSA.) Contributions are tax deductible in the year the contribution is made. Contributions can be pre-tax or tax deductible on the employee’s personal tax return. Funds earn interest tax-free. Reimbursements for qualified medical expenses are excluded from income. Employee may withdraw funds for non-medical expenses subject to income and excise tax.