Unlike a Health Reimbursement Account, which is entirely funded by an employer, a Health Savings Account (HSA) can be funded by an individual, their employer, or a combination of the two, either through an employer-sponsored plan or an individual plan. HSAs allow individuals and their employers to set aside money for health expenses that are not covered by the individual’s health insurance plan, such as deductibles, co-payments, and coinsurance amounts.
Tax Advantages of an HSA
HSAs offer tax advantages to both individuals and employers. The funds a person and/or their employer invests in an HSA account are tax deductible, the funds can grow tax-free, and the individual doesn’t have to pay taxes on withdrawals from the account as long as they use the funds for qualified medical expenses, as outlined by the IRS (see more on withdrawing money from an HSA after retirement here). The IRS sets limits on how much a person and/or their employer can contribute to an HSA every year—in 2014 it’s $3,300 for an individual or $6,550 for a family.
Individuals can use an HSA for a wide variety of qualified health expenses—everything from birth control pills, to eye surgery, to psychiatric care. The money invested in an HSA can be rolled over from year to year, and, unlike an HRA, the employee completely owns the funds.
Here is a snapshot of an HSA:
- Employees completely own funds
- Funds can be used to pay for a variety of qualified medical expenses, tax-free
- Money rolls over from one year to the next
- The IRS limits how much you can invest into the account every year
We hope you have a better understanding of the key differences between Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs). Stay tuned for more valuable information from your trusted California health insurance agent.