HSA vs HRA: What Are the Differences?

By Javier Simon Published Jun 6, 12:00PM EDT

HSA vs HRA: What Are the Differences? — © ESB Professional / Shutterstock.com

Health savings accounts (HSAs) and health reimbursement arrangements (HRAs) are both designed to help you cover qualified medical expenses. But there are key differences between the two.

HSAs are individually-owned savings accounts that you can contribute toward to in order to save for future medical bills. They are offered by some employers and various financial services companies like banks and brokerages.

HRAs are plans or arrangements between you and your employer that allow your company to reimburse you for qualified medical expenses that you’ve already paid for on your own.

HSA vs HRA: Key differences

A piggy bank with a calculator and stethoscope showcases the financial aspect of healthcare.

HSAs and HRAs work very differently.

HSAs and HRAs differ in many ways– mainly when it comes to contributions, portability, eligibility requirements, and tax treatment.

Contributions

When you open an HSA, you can contribute toward the account up to contribution limits set by the IRS each year. However, you can’t contribute toward your HRA. Only your employer – the owner of the plan – can make contributions. And employers set contribution limits.

Portability

Your HSA belongs to you. If you opened your HSA through an employer, your HSA funds are still yours even if you lose your job or change employers. You can rollover your HSA into a new account. Or you can keep your funds with your former employer if they allow it.

An HRA belongs to your employer. So you typically lose your HRA funds if you leave the company for any reason.

Eligibility requirements

To open an HSA, you need to pair it with a qualifying high-deductible health plan (HDHP). For 2024, the deductible minimum for these plans is $1,600 for individual coverage or $3,200 for a family coverage.

An HRA is generally offered through an employer-sponsored group health insurance plan. So the employer sets eligibility requirements.

Tax treatment

HSAs are known for their triple-tax advantage. HSA contributions are tax free. Money in an HSA grows tax-free with compound interest. And withdrawals are also tax-free if used on qualified health expenses.

HRA reimbursements are also tax-free if used on qualified medical expenses.

HSAs: Points to consider

Head shot portrait smiling Indian female doctor physician in white uniform with stethoscope holding pink piggy bank, looking at camera, medical insurance or charity concept, healthcare and medicine

HSAs can provide key tax advantages.

HSAs can be effective savings vehicles to cover qualified healthcare costs. But if you use HSA funds on anything else before reaching age 65, you’d take on a 20% penalty in addition to ordinary income taxes on the distribution.

But after age 65, your HSA can supplement your retirement savings strategy. That’s because after reaching age 65, you can withdraw HSA funds to cover anything penalty free. Although, you’d still owe ordinary income tax on the distribution.

However, this benefit could help make your HSA an addition to your IRA, Roth IRA, or 401(k) in your retirement savings arsenal.

Moreover, many financial institutions allow you to invest your HSA dollars in stocks, mutual funds, and exchange-traded funds (ETFs) to help you seek growth.

HRAs: Points to consider

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HRAs can help you pay yourself back for qualified medical expenses.

There are different types of HRAs an employer may offer. Here’s a glimpse at some common types.

Standard HRA: This is the basic HRA plan that allows employers to provide tax-free reimbursements to employees for qualified medical expenses.

Individual coverage HRA (ICHRA): This arrangement allows employers to set up a type of HRA for employees enrolled in individual health insurance coverage through the private marketplace.

Qualified small employer HRA (QSEHRA): This is a type of HRA designed for small businesses that would like to provide employees with a tax-free reimbursement plan to cover qualified medical expenses.

Why we covered this

Portrait of affectionate young mother cuddling little cute girl, sitting at table with piggyback, planning future family investment, saving money for healthcare insurance or college education.

It’s important to understand the differences between HSAs and HRAs.

Although HSAs and HRAs are both effective tools designed to help people cover healthcare costs, they are two very different entities. To clear the smoke and so you can understand how HSAs and HRAs work, we designed this comparison piece.

If you want to learn more about HSAs, check out our regularly-updated HSA main page for the latest coverage.

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About the Author Javier Simon →

Javier Simon is a contributor for 24/7 Wall St. His work has appeared on major financial publications like Fox Business, The Motley Fool, Money Magazine, and more. He’s experienced in covering a range of personal finance topics including retirement planning, investing, taxes, student loans, and mortgages. He’s also versed in writing in-depth reviews of brokerage and fintech products. Javier earned his bachelor’s degree in multimedia journalism from SUNY Plattsburgh. That’s where he first embarked on his journey into journalism as a staff writer for the award-winning newspaper Cardinal Points. His first professional gig in the world of personal finance was as a staff writer for the fintech company SmartAsset. There, he became a Certified Educator in Personal Finance (CEPF) and led a project producing high-ranking reviews of 529 college savings plans sponsored by different states.