Open Enrollment

back to Open Enrollment

FSA, HSA, HRA: What Does It All Mean?

Making sense and making the most of these health plans

If you're "benefits-savvy" and are participating in a consumer-directed health planconsumer-directed health plan
Also referred to as "consumer-driven" or "consumer choice" health plans. A relatively new type of he... more
, you may need a few pointers. These plans, which usually combine an underlying health planhealth plan
A health plan that you buy or that is provided by your employer. It pays for health care services. I... more
, like a Preferred Provider Organization (PPO)Preferred Provider Organization (PPO)
A health benefits plan that allows an individual to choose any provider without designating a primar... more
, with a fund or account like an FSA, HSA, or HRA, are relatively new on the benefits scene. Now, don't be intimidated by this alphabet soup of names. Think of these plans like medical bank accounts, giving you more control over a portion of your health benefitbenefit
The term "benefit" may refer in general to a health plan (your "benefits"), specifically define the ... more
dollars.

How? By providing you with credible information and letting you use that information to make decisions about the doctors you use, the hospital you go to, and with the OK from your doctor, even whether a generic or brand name drug is right for you. You then pay for your health care needs using an account, similar to your bank account, or receive coverage through the medical plan that is connected to your fund. It's important to note that you may spend more out-of-pocketout-of-pocket
Amounts such as copayments and deductibles that an individual is required to contribute toward the c... more
in these plans, and if you have a choice, think through whether these benefits are right for you.

If the idea of balancing yet another checkbook makes you sick just thinking about it, don't worry. They're really not that hard to master. Just take the time now to learn how your account works - and soon you'll be spending your health benefits dollars like a pro.

Flexible Spending Account (FSA)

FSA Fast Facts — With an FSA, money is taken from your paycheck before taxes (you set the amount) and put into an account. You can then use that money to pay for medical expenses throughout the year. It's important to understand that FSAs have a "use it or lose it" provision — meaning that you must use the dollars in the year in which they are saved or you will lose them at the end of the year. Check with your plan to make sure expenses are "covered," meaning they are approved by the Internal Revenue Service as a qualified medical expense that can be paid for with your tax-free dollars. For example, while the cold medicine and band-aids you pick up at your local pharmacy can be paid for with your FSA funds, the magazines you buy at that same pharmacy would not be covered.

Check out one of these websites for more information on FSAs: FSAandYou.com and FSAFeds.com. They include lists of things usually covered by FSAs. You can also visit Aetna's FSA Calculator to find out more about the health savings opportunities and tax advantages a FSA could provide to you.

to top

Health Savings Account (HSA)

HSA Fast Facts — With an HSA, traditionally money may be taken from your paycheck before taxes or you can open up an individual HSA account and contribute money on your own. Your employer or a family member can also contribute to your HSA. To qualify for an HSA you must be a member of a "high-deductiblehigh-deductible
A set amount that you must pay for your medical services before the health plan starts to pay.... more
health planhealth plan
A health plan that you buy or that is provided by your employer. It pays for health care services. I... more
." This means that your plan — in many cases a PPO — requires that you pay a certain amount of money up front before your plan coverage kicks in. The great news is that your HSA funds can be used to pay for this deductibledeductible
A set amount that you must pay for your medical services before the health plan starts to pay.... more
. You can also use this money into the future — letting you save for medical expenses down the road. So, even if you chicken out on your LASIK eye surgery, you don't lose that money. Check out Aetna's HSA calculator to find out more about the savings opportunities and tax advantages an HSA could provide for you.

to top

Health Reimbursement Arrangement (HRA)

HRA Fast Facts — An HRA is an account offered to employees or retirees, where you can use the money to pay for deductibledeductible
A set amount that you must pay for your medical services before the health plan starts to pay.... more
and co-insuranceco-insurance
The portion of the cost of covered medical services paid by the patient under a health plan, after f... more
amounts, or covered medical expenses. Like an HSA, leftover dollars generally can be used from year-to-year, as long as you continue to be a member of the plan. Also, the money is contributed by your employer and doesn't count as income; saving you valuable tax dollars — complete with Uncle Sam's stamp of approval.

to top

Consumer-directed health plans at-a-glance

Understanding the full spectrum of consumer-directed plans and how each can work for you can be confusing.

 

Health Savings Account (HSA)

Health Reimbursement Arrangement Account (HRA)

Flexible Spending Account (FSA)

Who is eligible?

Any individual covered by a qualified high-deductible health plan

All employees

All employees, except those self-employed

Who can contribute?

Employer, individual or both

Employer only

Employer, individual or both

What are the funding options?

Funded account with real dollars

Typically paid as incurred

Funded account with real dollars

Does the balance carry over?

Unused fund balance carries over to the next year

Unused fund balance carries over to the next year — plan can define carry-over limit

Use it or lose it arrangement – balance does not carry over

Are rollovers permitted?

Rollovers are permitted from MSAs & HSAs

Rollovers are not permitted to HSAs

Rollovers are not permitted

Is the fund or account portable?

Yes

No, but may be allowed to roll over to RRA

No

Are there interest or investment earnings?

Yes

No

No

What are the tax advantages?

Account earns tax-free interest


Employee contributions through a cafeteria plan are pre-tax


Other contributions are tax deductible


Employers with a cafeteria plan enjoy FICA tax savings


Qualified withdrawals are not taxed


Non-qualified withdrawals subject to income tax and 10 percent penalty

Employers may deduct reimbursed employee medical expenses as a business expense


Reimbursements are excludable from the employee's gross income

Employee contributions are made on a tax-free basis


Employers with a cafeteria plan enjoy FICA tax savings

 

to top

back to Open Enrollment