Blog: HSA vs HRA: Advantages and Disadvantages

Healthcare is a major expense for the majority of Americans. Both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) provide assistance with health care costs, but they work differently. We will cover both HSAs and HRAs in depth to help you make an informed decision about which one may be right for you.

What is an HSA?

An HSA, or health savings account, is owned by the individual. It is an account that you can draw from to pay for eligible medical expenses. Contributions are tax-deductible and it is available to those who have a high deductible health plan. Both the employee and employer can contribute to an HSA. It is owned by you so if you leave your job then you will take your HSA with you.

What is an HRA?

An HRA, or health reimbursement arrangement, is run by your employer and it offers reimbursement for medical expenses that you pay for first. Employees can claim a tax deduction for these reimbursements. If you leave your job, then you cannot take the HRA with you.

What am I eligible for?

To be eligible for an HSA you must meet the following criteria:

You must have a high deductible health plan that is HSA-eligible.
You can’t have Medicare or any other non-HDHP health insurance.
You cannot have a FSA account.
You can’t be a dependent on someone else’s tax return.

All employees are eligible for an HRA if an employer offers it. HDHP members who are not eligible for an HSA are eligible for an HRA.

Is it better to have HSA or HRA?

Take a look at your current health insurance to decide if an HSA or HRA is better for you. An HSA is a great option if you have a high deductible health insurance plan. We will outline the advantages and disadvantages to both below.

HSA Advantages

You own and control the HSA: This means that if you change jobs then you still keep your HSA.
You can open without an employer: If you have a HDHP then you can open an HSA without an employer.
You can contribute your own money: You can contribute money to an HSA up to the annual contribution limits for that year. You don’t have to rely on an employer.
Tax benefits: Contributions are tax-deductible, money in your HSA grows tax-free and money can be withdrawn from your account for qualifying medical expenses without incurring any tax penalties.
You can invest your HSA: Investing your HSA means that you can grow your account over time.

HSA Disadvantages

Contribution limits: The contribution limit for HSAs is low. The HSA contribution limit for 2022 is $3,650 for single coverage and $7,300 for family coverage. There is an additional $1,000 catch-up contribution for account holders age 55 or older.
Limited investment options (for some HSA providers).
You can only contribute to a HSA if you have an HSA-eligible HDHP: For 2022, HSA-linked HDHPs must have an individual deductible of at least $1,400, or a family deductible of at least $2,800. For 2023, this will rise to $1,500 for individual coverage or $3,000 for a family plan

HRA Advantages

Employers contribute: Employers contribute money to an HRA to cover your health costs. You don’t have to make your own contributions.
No contribution limit: There’s no maximum annual limit on how much employers can contribute but some HRA plans do have a cap.
Not taxable to you: Money your employer puts into your HRA is not taxable for you.

HRA Disavantages

You cannot contribute to an HRA: You have to rely on the contributions from your employer.
Your employer owns the account: If you leave your job then you also lose your HRA.
Money in an HRA cannot be invested: The money cannot grow over time and you will lose it if you don’t spend it during that year.

Can I have a HSA and a HRA?

Yes, you can have both an HSA and HRA. However in order to have both, you must have an HSA-qualified HDHP and not be covered under other health insurance that is not an HDHP.

An HSA has some important benefits that HRAs don’t. If your employer is offering an HRA then it can be worth having but you should also consider an HSA if you can afford it. An HSA can offer you greater coverage of eligible expenses and you could also use it as additional retirement savings.