What’s the difference between an Health Reimbursement Arrangement and a Health Savings Account? I found this question on CNN Money’s Ask and Answer blog and had to reply.
The main difference between a Health Savings Account and a Health Reimbursement Arrangement is control. With the HSA you are in control of the account while the HRA gives the control to the employer. Any unspent money can be carried over to the next year with an HRA, but cannot be taken with you if you leave the company. This is where an HSA is better as the unspent money remains in a savings account drawing interest and money in the HSA can be used for investing.
The HRA offers a tax advantage to the employer, while the HSA can offer a tax advantage to both the employer and the employee. The HRA gives the employer increased flexibility and control, but overall the HSA plan has more advantages to both the employee and employer.
A company with a high turnover rate can certainly benefit from offering an HRA program, but for companies that like to keep their employees a Health Savings Account is preferable.
