You can make your health care funds work for you by setting up an HSA (health savings account) or HRA (health reimbursement arrangement). Since they are both health insurance, there will be limits, guidelines, and lots of fine print. Both HSAs and HRAs are designed to help you have more control over what you spend on your health care. Both are intended to be used for qualified medical expenses. But since there is a difference between HRA vs HSA for small businesses, you need to learn more about it to be able to choose between the two.
This is the main difference between an HRA and an HSA. Your HSA is owned by you, while your HRA is owned by your employer. While both may be part of an employer-sponsored plan, you can leave one behind. If you have an HRA and change jobs or get let go, those funds do not leave with you. They belong to your employer and you won’t have access to them. However, with an HSA, it’s a completely different story. An employer-sponsored HSA means you opened your HSA through your employer.
You don’t have to open it yourself through an HSA provider. No matter what happens with your job, that HSA belongs to you. Your funds can go with you wherever you go, including contributions from your employer.
You can’t open an HRA without your employer’s permission and your employer may not be able to open an individual HRA for all employees. However, your company may offer them to certain groups of employees, such as salaried employees, but not to hourly workers. On the other hand, an HSA can be opened by an employer or by you. Whether you open an HSA through your employer or on your own, there are no different requirements to qualify. You must be enrolled in an HDHP. You can open your HSA quickly and easily if you’re not employed, don’t have a job, or your employer doesn’t offer an HSA.
With HRA’s, the tax benefits apply only to the employer. Since an employer puts up the money, the employer also gets the tax benefit. However, HSAs on the other hand can have a triple tax benefit. If you have an HSA through your employer, your contributions can be made directly from your paycheck to your HSA and this is not counted as income. This is known as a pre-tax deduction from your paycheck. Depending on your situation, you may be able to report your contributions as deductible on your tax return. Therefore, your contributions not only come tax-free but also grow tax-free.
An HSA may earn interest, but an HRA does not. As long as the money in your HSA is used for qualified medical expenses, you won’t have to pay taxes or penalties if you withdraw the money.
The amount your employer can contribute depends on the type of HRA your company offers. You can contribute as much as you want if your company offers individual coverage. Remember that your employer is responsible for funding your ICHRA. Therefore, it is unlikely that your company will increase your contributions. If you have QSEHRA (qualified small employer health reimbursement arrangement), then there are no contribution limits. The maximum contribution for 2020 is $5250 for individual coverage and $10600 for family coverage. It is important to note that HRAs are employer-sponsored and your company may also set rules about what can be reimbursed, such as co-pays, deductibles, and co-insurance.