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HSA vs HRA: what you need to know in 2024

Want to compare HSAs and HRAs? The health insurance world is riddled with acronyms, and some are so similar, it’s tempting to believe that means they have more in common than they do. What do those mean exactly? How are they similar and how are HSAs and HRAs different? Let’s dive right in.

HSAs vs HRAs

If you're one of the many business owners looking to mitigate the risks of inflation and recession on your health insurance, you're probably asking yourself questions like "What are the difference between HSAs and HRAs?," "How do I compare HSA vs HRA?," or "Is an HSA or HRA better for my company??

You're in the right place. 

Both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are tax-advantaged tools that help individuals pay for out-of-pocket medical expenses for themselves and their families through set-aside funds. However, there are some key differences. 

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The main thing these tools have in common is their tax-friendly design. It's why we love them!

Health Reimbursement Arrangements boast no payroll tax or employer tax for employers and no income tax for employees.

Let's look a bit more closely at what these tax-advantaged options actually are.

Learn how tax-advantaged accounts can boost your bottom line.

Ask us about tax-free health insurance reimbursement!

What are HSAs? 

HSAs are: 

  • Funded by both employer and employee
  • Owned by Individual; employee takes funds with them when they leave
  • Employee has immediate access to money in account
  • Funds only for medical expenses that fall under the health plan’s deductible 
  • HSA funds cannot be used for insurance premiums
  • HSA participants must have a High Deductible Health Plan (HDHP) 
  • Typically come with a debit card for added convenience 
  • Tax deductible contributions, tax free reimbursements, and tax free accumulation of interest and dividends

How do HSAs work?

Employees can set up monthly contributions through payroll to add money to their HSA account. If they anticipate high expenses for the year (say, they are having a baby) it might be a good chance to bump up the contributions.

You can change contribution rates at any time. The idea is to have enough money in the HSA to cover that high deductible, which can be a pretty scary number sometimes.

Benefits of an HSA

HSAs protect employees from giant healthcare bills. In the event something happens and you end up with an out of network deductible that would normally break the bank, if you’ve been diligent about putting money in your HSA, it will soften the blow and help you cover your costs.

If those costs never come, the HSA funds continues to grow and the account serves as a long-term investment account. The funds stay with the employee and can be a helpful retirement savings account if the funds are never used for healthcare. 

Key HSA benefits are the tax advantages. HSAs have three tax advantages, in fact:

  • contributions made by employers are pre-tax, contributions made by the employee are tax-deductible.
  • you don't pay tax on account growth
  • withdrawals from the account (to pay for eligible expenses) are not taxed

Real world example: Since HSA contributions don’t count toward your tax burden, you will be taxed as though you make less money. So, for example, if you make $40,000 per year and you contribute $3,000 into your HSA, you will be taxed as though you make $37,000, thus lowering your tax burden.

Are there tax penalties with HSAs?

If you withdraw funds for non-qualified expenses before you turn 65, you'll owe taxes on the money plus a 20% penalty. After age 65, you'll owe taxes but not the penalty.

Once you’re over age 65 and enrolled in Medicare, you can no longer contribute to an HSA, but you can still use the money for out-of-pocket medical expenses.

What are HRAs?

HRAs are:

  • Funded entirely by Employer (no employee contributions)
  • Account owned by Employer- funds stay with employer if employee leaves company
  • Reimburses health insurance premiums and medical expenses
  • Money is reimbursed for expenses/premiums after they are incurred and receipts are provided
  • Employees must have health insurance (minimum essential coverage) to participate
  • Tax free for both employee and employer

See how HRAs work in your location!

How do HRAs work?

An HRA is pretty straight-forward: the employer reimburses for premiums and medical expenses on a tax-free basis, and the employee chooses a plan that fits their needs. Employees are then reimbursed when they submit a claim.

A few notes:

  • HRAs are not pre-funded; i.e., there is no "account" 
  • HRAs roll over month to month but not year to year 
  • Unused HRA funds stay with employer

Types of HRAs

There are a few HRAs available, but the newest (and dare we say, best) around are the ICHRA and QSEHRA. Both ICHRA and QSEHRA can work with HSAs.

  • Qualified Small Employer HRAs are specifically for small companies with less than 50 employees. They have an annual cap on reimbursement amounts. 
  • Individual Coverage HRAs are for employers of any size with no cap on reimbursements. These can be tailored more efficiently with the use of ICHRA employee classes.

We are so excited about these HRAs and all the benefits they offer, that we wrote comprehensive, in-depth guides to the ins and outs of both. 

HRA Reimbursement Process

The reimbursement process for HRAs is simple and streamlined. HRA administration software handles employee enrollment and ensures compliance with the individual health plan that they choose. When medical expenses are incurred, employees simply snap a picture of the expense (say a doctor visit copay or a prescription), it runs through compliance, and is then reimbursed on their paycheck.

What do HRAs and HSAs have in common? 

There are a lot of similarities between HRAs and HSAs. It makes sense why people get them confused. Here are a few things that the two benefits solutions have in common:

  • HRAs and HSAs are both tax-advantaged accounts, meaning reimbursements or contributions are made on a pre tax basis.
  • HRAs and HSAs are both tools that help lower the cost of healthcare for employees.
  • HRAs and HSAs can be effective ways for employers to boost their recruitment and retention.

The difference between HSA and HRAs

There are several key differences between HSA vs. HRAs.

  • With HSAs, you avoid the “use it or lose it” stipulation. It’s not like an FSA (flexible spending account) where you lose the funds at the end of  the year. Funds are also portable, meaning they remain the employees’ to keep even if they don’t stay at the company.
    This is also different than the QSEHRA, where the funds stay with the employer. 
  • HSA grows like an investment and an HRA does not. 
  • To take full advantage of HSA tax savings, it is suggested that you make the maximum contribution as set by the IRS. The 2024 HSA Contribution limits for self-only coverage will be $4,150, a 7.8 percent increase from the $3,850 limit in 2023. For family coverage, the HSA contribution limit jumps to $8,300, up 7.1 percent from $7,750 in 2023.The QSEHRA contribution limits for 2024 are $6,150 for individuals and $12,450 for families.

  • While the ICHRA does not have annual contribution limits, the QSEHRA does

Eligibility Rules

It's critical to consider eligibility rules when comparing HSA vs. HRA.

  • HSA: To be eligible for an HSA, you must select a high deductible health plan to accompany it. Beyond that, there are a few caveats to remember. If you have any coverage in addition to your HDHP that provides first dollar coverage for medical care, you might be disqualified from opening or contributing to an HSA (and that includes employer contributions). Other reasons that you'd be disqualified include coverage under your spouse's plan that is not an HDHP, a spouse's FSA, Medicare, or HRAs that reimburse for medical expenses and premiums. 
  • HRA: To be eligible for an HRA like ICHRA or QSEHRA, you must have a qualified health plan that meets Minimum Essential Coverage requirements. Oftentimes, these are plans on or a state-based exchange that have a metal associated with the name. You'd also need to be working for a company that offers an HRA in the first place. Most commonly, that would mean you're a W9 employee. For owner eligibility, that would vary by the way the business is set up. 

How can the money be spent? 

Wondering how HSA funds or HRA funds can be used? That's the fun part! High level, the funds can be spent in the same fashion. IRS Publication 502 breaks this down in detail. We've also got a blog on HRA eligible expenses that can be applied to HSAs as well. 

  • HSA: Qualified medical expenses outlined in IRS Publication 502. It does not reimburse for health insurance premiums.
  • HRA: Qualified medical expense outlined in IRS Publication 502 in addition to individual health insurance premiums. 

Tax benefits and advantages 

If you're looking into which is better, HSA or HRA, it's important to take a look at their tax implications. They are both tax advantaged but there are some specific differences. 

  • HSA: Employer contributions are pre-tax, employee contributions are tax-deductible, there's no taxing the account growth, and withdrawals to pay for eligible medical expenses are not taxed.
  • HSA: Reimbursements are not subject to income tax, payroll tax, or employer tax, making it tax advantaged for both employer and employee. 


The funding aspect is a key difference between HSA and HRA. 

HSA: Funded by both employer and employee into a savings account.

HRA: Funded only be employer (employees cannot contribute) and it's based on reimbursements only. There is not pre-funding of accounts. 

Leaving your job 

Employee portability is another factor when looking at the difference between HSAs and HRAs. 

  • HSA: These are fully portable. They stay with the employee and continue to grow, no matter where they are employed.
  • HRA: These are not portable, but the health plan itself is owned by the employee and can be taken to their next job. Once they leave their job, the HRA benefit expires.  

Making the Choice: HRA vs HSA

Which is better, HSAs or HRAs? Great question. Both HRAs and HSAs are excellent tools for employers to help support employees as they shoulder the high costs of healthcare. What's best for your company and employees depends on a number of factors. 

Who can take advantage of an HRA?

Companies of all sizes, in dozens of industries, and in all 50 states are taking advantage of HRAs. For employers, HRAs are especially helpful if a small company is new to benefits, or if a larger company is looking for an alternative to a group health plan. For employees, they can take advantage of an HRA only if their employer offers one. 

Who can take advantage of an HSA?

Any company can offer an HSA alongside a HDHP or an HRA with HDHP options. For individuals, anyone can have an HSA if they choose a HDHP. They don't need a company sponsored HSA (although employer contributions here are sure helpful!). 

Can I have both an HSA and an HRA? 

Yes! You can have an HSA and an HRA together if you choose a high deductible health plan. There is a catch, however, that's worth noting. The IRS has very specific rules about how these two tax-advantaged accounts can work together. The key principle here is that you can use HSA funds any time to cover medical expenses as long as you don't submit those expenses for reimbursement from your employer. 

Another rule? If you are using an HSA and HRA together, the HRA must be set up to reimburse premiums only (not medical expenses). 

Still have questions?

Hopefully we’ve cleared up some of the confusion on HSA vs. HRA, but perhaps you’re still wondering do HRAs and HSAs work together? The link above will spell that out for you, including the very specific IRS rules governing this topic. If your question is simply how do HRAs work, this post lists out a step by step guide. 

Other helpful resources: 

Need help making sense of how to get the most out of these two great tax-friendly tools? Our team of HRA experts is at the ready to chat with you on our website. You can also check out our guide on small business tax strategies for more ideas on how to play it smart. 

Ask our experts how to get started today (it's easy!)

This post was originally published in 2022 and has been updated to reflect the latest regulatory and policy changes in 2024.

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