Making the Right Choice Between HRA or HSA
I think most of us can agree that with the high cost of medical services in today’s economy, it is important to have as much protection against unexpected medical expenses as possible. Of course, you eat right, exercise, and carry a reasonable amount of health insurance, but is that enough? Many people think not, and prefer to include the added benefits an HRA (Health Reimbursement Arrangement), or HSA (Health Savings Account) can bring to the table. But, which one is the right choice for you?
Depending on whether you are an employee, or an employer, combined with your health coverage goals, you first must understand the differences between these two programs and what types of coverage they do, and do not provide. Both plans promote consumer involvement by helping people to better understand healthcare costs, and rewarding those who maintain good health by rolling over untouched funds.
In short, an HRA is often the most beneficial to the employer, whereas an HSA provides the employee with a greater cost savings. Let’s break down some of the differences so, you will be better equipped when it comes time to choose which plan will best meet your health care requirements.
When it comes to HRA’s employers enjoy a greater amount of control over costs. Only employers are allowed to make contributions, and are only responsible for medical expenses that have already been incurred. There is no actual “account” to draw from, and employers also have more freedom to determine which expenses are covered by their HRA. Contributions made to an HRA by employers are tax-deductible, and easier to control and manage. Software can also be purchased to further simplify the processes making this the best choice for them.
HSA’s are generally more advantageous towards employees, but are subjected to more regulations, and must follow stricter guidelines as set forth by the IRS. Whereas an employer is the only person who can contribute to an HRA, the employer, employee, or even third parties are all able to contribute to an HSA. The IRS establishes guidelines for maximum contributions, and this coverage must accompany a high-deductible insurance policy, held by the employee. Another benefit of the HSA is that should a person change employers the contributions follow them to their next job. No benefits are taken when an employee leaves a job where the employer has provided HRA coverage.
As you see, like most decisions in life, there are advantages and disadvantages to both choices. It is worth your time to investigate and better understand the complex differences between these two types of coverage, so you can come to the conclusion that best suits your medical coverage needs.