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HRA vs. HSA: Which Is Better To Offer Employees?

  • Beneficios para empleados
  • Artículo
  • Lectura de 6 minutos
  • Last Updated: 09/20/2022

una empleada que paga su hra y hsa en una farmacia

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Healthcare expenses in the United States can be a major financial burden. On the global scale, numerous studies assessing healthcare costs point to an ongoing trend of the U.S. outpacing its peers in healthcare spending. In the U.S., personal health care expenditures in constant dollars were 31% higher in 2019 than in 2009 (accounting for inflation), according to the U.S. Centers for Disease Control (CDC). The pandemic has only exacerbated the issue. In response, employers are stepping up to provide some much-needed relief to their workers' financial healthcare pressures.

A health savings account (HSA) or health reimbursement arrangement (HRA) are two types of popular healthcare savings / reimbursement accounts. Both help offset healthcare expenses, but when it comes to an HRA vs. HSA, there are differences. When trying to choose between the HSA and HRA dilemma, a simplified, clear understanding of each can help you select the one that's most advantageous for you and your employees.

What Is the Difference Between an HSA and HRA?

While both an HSA and HRA help offset healthcare costs, each has its own structure and functionality. The biggest difference between an HRA and HSA is around ownership. An employer owns a health reimbursement arrangement. With a health savings account, ownership goes to the employee / account owner.

Ownership has implications for the employee's future. When an employee eventually leaves their employer, the HSA remains with them, whereas with an HRA, all remaining funds in the employee's account go back to the business. Related to ownership is the topic of contributions. Both the employee and the employer can contribute to an employee's HSA. In contrast, HRA contributions are only made by the employer who also determines the plan's design. These accounts diverge in other ways as well.


An HSA is a special purpose bank account owned by an employee. Both employees and employers can contribute to an HSA up to the annual limits set by the IRS. For 2023, the IRS contribution limits are $3,850 for individual accounts and $7,750 for a family. Individuals age 55 and older are allowed to contribute an additional $1,000 as a catch-up amount. To make contributions to an HSA, the employee must have a qualified high-deductible health plan (HDHP). Compared to a traditional healthcare plan, qualified high-deductible healthcare plans have lower monthly premiums that are offset with higher deductibles. Because employees own and control their HSAs, they can treat them as a long-term savings vehicle that is earmarked for qualified healthcare expenses, even in retirement.

When assessing HSA vs. HRA for tax advantages, an HSA offers three tax perks:

  1. employees do not pay taxes on contributions,
  2. investment earnings are non-taxable, and
  3. an employee does not pay taxes on withdrawals for qualified medical expenses.

There is a tax advantage for employers, too. Employee contributions to an HSA through payroll are made on a pre-tax basis, saving them a portion of FICA taxes. An HSA is an employer health care solution that makes a great addition to an employee's overall retirement savings plan and financial fitness.


Think of an HRA account as a holding tank. An employer makes contributions to the account that employees can then use to be reimbursed for qualified medical expenses. There are no IRS restrictions on how much an employer can contribute, and HRAs must be paired a group healthcare plan. Moreover, an employer can restrict how funds are rolled over each year (if at all) and on purchases that qualify for reimbursement. Unused funds are returned to the business.

Tax benefits with an HRA are two-fold. Your employee is given tax-free money to use for qualified medical expenses and contributions are 100% tax-deductible for the business. An HRA is an excellent benefit and when paired with a flexible spending account, it can go a long way toward alleviating your workers' financial burdens.

HRA vs. HSA Comparison Chart

The HRA/HSA comparison chart below outlines the main differences between HRA vs. HSA for a simplified, at-a-glance comparison.

Eligibility Rules Any worker [employee only] whose employer offers an HRA is eligible. Only employers can open an HRA. Any individual who has a qualified HDHP, is not covered by any other medical plan or Medicare, and is not claimed as a dependent on someone else’s tax return can open an HSA.
Contribution Rules Only employers can contribute to an HRA. Both the employee (and other individuals) and employer can contribute to the account.
Annual Contribution Limits Varies depending on the type of HRA including no limits in certain situations. Annual limits are set by the IRS.
Account Ownership The employer owns the account. Privately held account owned by the employee. The account remains with the employee when they leave their job.
Withdrawal Rules Funds can be used for qualified medical-related reimbursements established by the employer. Funds can be used for any reason, but if the funds are not used for qualifying medical purposes and the account owner is younger than 65, the withdrawal will be subject to a 20% penalty. After age 65 funds can be withdrawn for any purpose and taxed at the regular income tax rate. Any funds withdrawn and used for qualified medical purposes are not subject to taxes.
Investing Rules Contributed funds cannot be invested. Contributed funds can potentially grow in investment accounts.
Carryover Rules Varies by the plan. Can be subjected to an annual "use it or lose it" rule or be allowed for some leeway with carryover as determined by the employer. Carryover rules do not apply because the funds can remain in the account indefinitely and continue to grow.
Tax Advantages Contributions are 100% deductible for the business and are not taxable income for the employee. Employee does not pay taxes on contributions or withdrawals for qualified medical expenses. Investment earnings grow tax-free. Employer contributions are tax-free to the employee’s HSA and a deductible business expense for the employer.

Which Is Better: HSA or HRA?

If you're choosing between an HSA or HRA, wondering which is better for employees, and weighing the pros and cons to your business, know that either one sends a clear message that you care about your employees' health and well-being. That said, there are pros and cons to each. Understanding your employees' needs can help you decide how to structure your health benefits package.

An HRA is attractive because it removes any financial burden an employee may face in making contributions. All contributions are up to you (the employer), and access to these tax-free funds can provide much-needed relief to an employee's out-of-pocket health care costs including vision and dental expenses. Meanwhile, an HSA can be a valuable tool that extends beyond healthcare needs, and a mechanism that can help employees begin to save for retirement. One drawback of an HSA is its restrictions on contribution limits and investment options. These parameters may not be an issue for some employees but may be a source of frustration for others.

Can You Have Both an HRA and HSA?

There are times when you don't have to weigh the options between HRA vs. HSA. If your healthcare offerings include a qualified HDHP alongside a traditional healthcare plan, you can provide both. Employees who opt for a qualified HDHP can benefit from an associated HSA, while your traditional health plan option can come with an integrated HRA.

There are also ways for an HRA and HSA to work together. For this to happen, an employee must be covered with an HSA-qualified HDHP. To supplement the HSA, an employer can also offer a "limited-purpose HRA" that lets an employer reimburse employees for care such as vision, dental, or preventative care costs. This allows employees to keep more of their money in the HSA where it can grow tax-free and remain set aside for retirement. When offering a limited-purpose HRA, take care to select a provider that will ensure compliance with federal regulations.

Benefits of HSAs and HRAs

HSAs and HRAs offer numerous advantages to employees and their sponsoring employers. Some benefits are specific to each account. Other benefits may not be entirely obvious, but still play an important role in helping employees and the business thrive.

HSAs make savings automatic for employees by giving them the option to have a certain amount deducted directly from each paycheck. Qualified high-deductible health plans, an HSA requirement, typically have lower premiums for the policyholder and the employer. Moreover, employees never have to worry about forfeiting any unused funds at the end of each plan year. Unlike an HRA, HSAs are investment vehicles that can enjoy compound growth. Another bonus: HSAs have a triple tax advantage, explained above. Employees don't pay taxes on contributions or withdrawals for qualified medical expenses. Interest earned in the account is also tax-free. Employers save money by deducting employee contributions from payroll on a pre-tax basis. HSAs are easy to administer, saving employers time and money by eliminating the need to track reimbursement claims. Finally, it's believed that HSAs help employees become more invested in their healthcare purchases because they are managing their own money and retirement savings, thus making them better-educated healthcare consumers.

For their part, HRAs are an attractive option as well. There is no annual contribution ceiling set by the IRS. Not only can employers contribute more, but they can also expect to recoup some of those funds. Unused funds at the end of each plan year are forfeited back to the plan's sponsor, though an employer can opt to let a portion of the funds roll over into the next year. Plus, when an employee leaves the company, any remaining funds in the HRA return to the employer. Eligibility is not as restricted with an HRA, and HRAs can be integrated with a wider array of healthcare plans.

Both HSAs and HRAs give employees a simplified tool to save money, improve their health, and reduce their tax liability. They are also ways an employer can demonstrate they are invested in their workers' well-being. These actions have a positive ripple effect through an organization. Helping staff members achieve a greater level of financial fitness can go a long way to help reduce their stress and anxiety resulting in higher productivity levels and greater overall happiness and loyalty with their job. Employers can also use HSAs and HRAs to incentivize positive health behaviors. For instance, they can use additional contributions as rewards for participating in activities such as attending a biometric screening, taking a health assessment, or finding a primary care physician. Offering these benefits can also help attract quality candidates in job searches.

Challenges of HSAs and HRAs

For all their advantages, HSAs and HRAs also have their drawbacks. In many cases, a perk for one represents a challenge for the other. A few of these have been discussed earlier, but it's important to consider each one.

An HSA has annual contribution limits set by the IRS. These may not be an issue for some employees and employers, while others may be looking for a vehicle that allows for contributions at a larger scale. HSAs can include investment accounts, and those options can be limited. Some investment firms may only offer one type of HSA while others provide a small handful. In either scenario, it's a narrow selection. Finally, if an employee does not have a qualified HDHP, an HSA is not an option.

Many of the disadvantages of an HRA affect employees. Workers are not permitted to contribute to their available funds and must rely on employers to make contributions. Unused funds are forfeited. Any remaining funds in the account after the plan year ends or when an employee leaves the organization are returned to the employer unless an employee elects COBRA coverage. HRAs are not investment accounts and will not grow or enjoy the benefit of compounding interest.

Find the Right Healthcare Coverage for Your Business

A quality health benefits package is a strategic tool, essential for taking care of your workers, ensuring productivity and a positive work environment, and attracting new, high-performance talent. Putting one together does not have to be a hassle fraught with concerns over compliance. Paychex can help build a health benefits strategy, including an HSA and HRA that can maximize your investment in your workforce.


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un empleador analiza sus opciones de hsa

An HSA can be a great benefit for your employees. When integrated with payroll, it can benefit your business too.

To help attract and keep good employees, provide them with an HRA to help cover out-of-pocket medical expenses.

* Este contenido es solo para fines educativos, no tiene por objeto proporcionar asesoría jurídica específica y no debe utilizarse en sustitución de la asesoría jurídica de un abogado u otro profesional calificado. Es posible que la información no refleje los cambios más recientes en la legislación, la cual podrá modificarse sin previo aviso y no se garantiza que esté completa, correcta o actualizada.

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