Choosing the right health benefits is crucial for maintaining your well-being and financial stability. Two common options offered by Target Health Benefits are Health Reimbursement Arrangements (HRA) and Health Savings Accounts (HSA). While both aim to assist with medical expenses, they differ in structure and usage.
Health Reimbursement Arrangement (HRA):
An HRA is an employer-funded benefit that allows you to be reimbursed for qualified medical expenses. Here's how it generally works:
Employer Contributions: Your employer contributes a predetermined amount to your HRA.
Expense Reimbursement: When you incur eligible medical expenses, you submit a claim to your employer, and they reimburse you from the HRA funds.
Employer Control: The employer has control over the HRA, determining contribution amounts and eligible expenses.
Rolling Over: Employers may choose whether unused funds roll over to the next year, providing added flexibility.
Health Savings Account (HSA):
On the other hand, an HSA is a tax-advantaged savings account that you can use to pay for qualified medical expenses. Here's how an HSA generally operates:
Employee Contributions: Both you and your employer can contribute to your HSA, up to annual limits set by the IRS.
Tax Advantages: Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
Portability: Unlike HRAs, HSAs are portable. If you change jobs, you can take your HSA with you.
Investment Opportunities: Some HSAs allow you to invest your contributions, potentially growing your savings over time.
Key Differences:
Ownership: While HRAs are owned and controlled by your employer, HSAs are owned by you. You can keep and use your HSA even if you change employers.
Tax Implications: HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free. HRAs are funded by the employer and are not tax-deductible for employees.
Portability: HSA funds are portable and can be rolled over from year to year, allowing for long-term savings. HRAs may have rollover options, but it's determined by the employer.
Eligibility: To contribute to an HSA, you must be enrolled in a high-deductible health plan. HRAs generally have no such requirement.
Understanding the difference between HRA and HSA is crucial for making informed decisions about your health benefits. Consider your medical needs, financial goals, and the features of each option to choose the plan that best aligns with your circumstances. Always consult with your benefits administrator or a financial advisor for personalized advice