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Health Care Consumerism: HSAs and HRAs 
 

  By SHRM Online staff 
 
 

Consumer-directed health plans (CDHPs) typically combine a health insurance plan with a tax-advantaged account that enrollees can use to pay for medical expenses—most commonly an HSA or HRA.

Enrollees in CDHPs, whether linked to an HSA or HRA, must keep track of funds in their accounts. If the account's funds are exhausted before the deductible is met in a given year, enrollees are responsible for paying for the difference out of pocket until they meet the plan deductible.

After an enrollee meets the deductible, the plan operates much like a traditional preferred-provider organization (PPO) plan. That is, generally the plan pays for most of the cost of covered services and the enrollee contributes a cost-sharing amount—which varies by plan—until meeting the maximum out-of-pocket spending limit, at which point the plan pays 100 percent of the cost of covered services.

HSAs vs. HRAs: Requirements and Features

Health Savings Accounts
(HSAs)

Health Reimbursement Arrangements
(HRAs)

Plan Design

HSAs must be linked to a high-deductible health plan (HDHP). For 2013 and 2014, HSA-linked HDHPs must have an individual deductible of $1,250 or higher, or a family deductible of $2,500 or higher.

HSAs have maximum total out-of-pocket expenses. For 2013, these maximums were $6,250 for single coverage and $12,500 for family coverage. For 2014, these maximums  increased to $6,350 for single coverage and $12,700 for family coverage.

(Also see "For 2014, Higher Limits for HSA Contributions, Out-of-Pocket Expenses for High-Deductible Plans.")

HRAs are often coupled with an HDHP but there is no requirement that they must be.

There are no government-set out-of-pocket maximum limits specifically for plans linked to HRAs.

Unspent Funds

HSA funds are "real dollars" in an employee-owned account. Unspent funds are rolled over to the next year, reducing or eliminating the enrollee’s share of the deductible in subsequent years.

HSA account-holders can invest unused funds in interest-bearing accounts or, if the administering firm allows it, mutual funds.

An HRA is a notional account controlled by the employer. Most HRAs allow the attributed "funds" to accumulate from year to year; however, this is not required and is at the employer's discretion.

Most HRAs do not pay interest to participants, nor do they allow participant-directed investments.

Funding

HSAs may be funded by employees, by employers, or by both. For 2013, the HSA contribution limits from all sources were $3,250 for single coverage and $6,450 for family coverage (with an additional $1,000 catch-up contribution for account holders age 55 or older). For 2014, contributions increased to $3,300 for single coverage and $6,550 for family coverage (with no increase in the catch-up contribtion).

Employer contributions are not taxable to the employee. Employee contributons can be made with pre-tax dollars through a Section 125 salary-reduction cafeteria plan.

HRAs must be funded solely by employers. Employer contributions are not taxable to the employee.

Portability

HSAs are employee owned and portable on termination of employment. Prior to termination, HSA funds can be transfered from one HSA adminstrator (including the default firm selected by an employer) to another HSA administrator at the account-holder's discretion.

An HRA's accumulated funds, on termination of employment, generally revert back to the employer.

There are some exceptions to the requirement to satisfy a CHDP's deductible before the plan will pay for health services received. Under the Patient Protection and Affordable Health Care Act (PPACA), for example, coverage of preventative health care (including annual physicals, vaccines and cancer screenings under specified guidelines) must be provided on a first-dollar basis, outside of the deductible, including for those enrolled in HSA- or HRA-linked plans.

Prescription Drug Coverage

Prescription drugs for chronic health conditions are often not considered preventative care by insurers, and therefore treated as only reimbursable in an HSA-linked plan after the deductible is met. However a growing number of HSA-compliant high-deductible plans have begun treating prescription drugs for chronic conditions as preventative treatment covered outside the deductible (for instance, see this formulary for Blue Cross Idaho HSA-compliant plans).

HRA-linked insurance plans unquestionably may cover prescription drugs outside of the deductible and without cost sharing.

Funds contributed into an HSA on a pretax basis—whether by employees or their employer—can be used to pay for most prescription drug costs paid out-of-pocket by employees, but not for over-the-counter medications except for diabetes supplies and some other eligible expenses.

Related Articles:

Misunderstanding HSAs Is Open-Enrollment Hurdle, SHRM Online Benefits, August 2013

For 2014, Higher Limits for HSA Contributions, Out-of-Pocket Expenses for High-Deductible Plans, SHRM Online Benefits, May 2013

Consumer-Driven Decision: HSAs vs. HRAs, SHRM Online Benefits, updated May 2013

Regs Limit Use of HRAs for Exchange-Purchased Coverage, SHRM Online Benefits, January 2013

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform Resource Page

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