Frederick McNulty, Finestra: I'm Frederick McNulty, Director of Content at Finestra. In this series, we're asking the most common questions about healthcare in the United States and hearing answers from certified experts.
Amethyst Storey: Hi, I'm Amethyst Storey. I'm a certified professional biller and I've been in the field for 17 years.
FM: The terms HSA and HRA are thrown around a lot in discussions about healthcare, but what exactly do those terms mean? Today, we'll be telling you what you need to know.
What is a Health Savings Account?
AS: A Health Savings Account is also called an HSA. It's an account that the individual owns, but both the individual and the employer can put money aside and into the account. And the money actually has tax benefits as well. If you were to leave the employer, it's also an account that you could take with you. It typically comes with a debit card and in order to have an HSA, you have to have a high deductible health insurance plan.
For example, you have Blue Cross; your deductible is $5,000. You know, you're never gonna meet that. You have your HSA card that you can use at the provider's office or anywhere that takes a Visa or a MasterCard card to pay for your qualified expenses, which would be most medical expenses that aren't covered by your insurance, or that are applied to the deductible. Also dental costs, vision costs and some over the counter drugs, as well. It's actually really good for people that have high deductible plans. I have one myself.
FM: What is a Health Reimbursement Account?
AS: A Health Reimbursement Account also known as an HRA is an employer funded plan. If you were to leave the employer, it does not come with you. It is a plan that you would pay for your medical expenses up front–your qualified medical expenses–which are the same as an HSA with the exception that with an HRA, sometimes they will also cover insurance premiums, but you have to pay the bills up front, submit them to your employer, and then get reimbursed for them at a later date.
FM: What are the differences between a Health Savings Account and a Health Reimbursement Account?
AS: The differences between a Health Savings Account and a Health Reimbursement Account are very minor, so listen close! The HSA will, you can pay upfront for your expenses with a debit card that you'll get that has a MasterCard or Visa logo for qualified expenses. Those are medical dental vision, and over the counter drug expenses. Whereas for an HRA, you have to pay for your bill up front, obtain a receipt, and then submit them to your employer for reimbursement at a later date. In addition, the HRA also sometimes will allow you to be reimbursed for your premiums from your insurance company.
The other big difference is that an HSA is owned by the individual, whereas an HRA is owned by the employer. So if you leave the employer, you can't take an HRA with you, but if you leave the employer and you have an HSA, you can take that with you. Your employer just wouldn't be contributing to it anymore. It would be only you contributing to it at that point.
FM: Speaking generally, who is an HSA better for?
AS: A Health Savings Account is better for somebody who doesn't have a lot of chronic conditions and medical expenses. You also have to have a high deductible health insurance plan in order to qualify for an HSA. In addition, it's better for somebody who is looking to pay their out of pocket expenses up front at the time of service, as it comes with a MasterCard or Visa logo debit card.
FM: As a good rule of thumb, who is an HRA better for?
AS: A Health Reimbursement Account is better for somebody like myself, who has a lot of chronic conditions and medical expenses, and also has a low deductible plan. As you have to pay for the expenses up front and then submit to your employer to be reimbursed for those expenses.