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Having an HRA and HSA: The Best of Both Worlds

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HRA and HSA; puzzle pieces

As the popularity of consumer directed healthcare (CDH) accounts rises, people want to know how they can get the most value out of them. When it comes to two pieces of the CDH puzzle, one frequently asked question is, “Can I have an HRA and HSA at the same time?

The answer is yes, under specific circumstances. Before we get to that, it’s important to take a quick look at these two accounts.

Both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are designed to help people pay for out-of-pocket medical expenses for themselves and their families through set-aside funds. They also provide participants, also known as healthcare consumers, more control over their personal healthcare. As a healthcare consumer with an HRA or HSA, you can choose how, when and where to spend your benefit dollars.

The chart below provides a side-by-side comparison of an HRA and HSA: 

  HRA HSA
Funding Employer only Account owner (others may contribute)
Owned by Employer Participant
Eligible expenses Employer decides within IRS-approved expenses IRS-approved expenses
Eligibility requirement None Must be enrolled in a high deductible health plan (HDHP)
Tax benefits Employer receives tax benefits on contributions Participant gets tax-free:

  1. Contributions
  2. Interest and earnings
  3. Withdrawals for eligible expenses
Transferable/Portability No Yes
Use in retirement Depends on plan setup Yes
Rollover Depends on plan setup Yes
 

Requirements to have an HRA and HSA at the same time

As mentioned earlier, you can have an HRA and HSA at the same time. To qualify for an HSA, you must be enrolled in a qualified HDHP. You also cannot have other health coverage that’s not high-deductible. For an HRA, it must be integrated with a group health plan to be in compliance with healthcare reform.

Once those conditions are met, there are four HRA plan types that are HSA-compatible, per IRS regulations.

  1. Limited Purpose HRA: Pays for permitted coverage (including vision and dental), permitted insurance, or preventive care only. These expenses do not count toward your HDHP deductible.
  2. Post-deductible HRA: Covers only medical expenses or preventative care incurred after your minimum annual HDHP deductible is met.
  3. Retirement HRA: Covers eligible expenses only after retirement.  Up until retirement, you can make contributions to your HSA.
  4. Suspended HRA: Before HRA coverage starts, you can elect to not receive reimbursement/payment for medical expenses incurred during the coverage period. While the HRA is suspended, you’re HSA-eligible. The suspension does not apply to permitted insurance, permitted coverage, or preventive care.

For further guidance, contact your benefits administrator or consult IRS Publication 969.

HRA and HSA advantages

If you’re fortunate enough to have an HRA and HSA, then you’re able to combine the best of both financial tools:

  • Tax-free employer funds to pay for qualified medical expenses with an HRA
  • Lower health insurance premiums with an HDHP
  • Funds that can be used for a wide variety of healthcare expenses
  • Triple-tax benefits with an HSA
  • Unspent HSA dollars that can be used in retirement

Healthcare is expensive. Having an HRA and HSA can reduce many of the cost burdens, while offering opportunities to build up your retirement savings. Talk to your company’s HR department for more information.

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