Unbiased Analysis of Today's Healthcare Issues

HRAs vs. HSAs

Written By: Jason Shafrin - May• 12•08

On Friday I posted on Consumer Driven Health Care.  These consumer driven health plans (CDHPs) involve individuals having direct discretion about how health care dollars are spent.  If you are interested in CDHP, there may still be some confusion over which H?A you prefer.  Is a HRA (Health Reimbursement Account or Health Reimbursement Arrangement) or a HSA (Health Savings Account) better?  Scott Borden of OFM Benefits Consulting gives some simple explanations in his Kansas City Star article (“…Health Insurance for Workers“).

You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

No Comments

  1. Jason Shafrin says:

    More information on CDHPs, HRAs and HSAs is available on Robert F. Graboyes’s article “Consumer-Directed Health Plans: Background, Structure, and Policy Issues.”

  2. The CDHP market has recently seen an influx of products and services that are designed to help consumers with their out-of-pocket costs. Both of the products mentioned here, HRAs and HSAs, fit into this category, and offer unique benefits for savings on healthcare spending. HRAs are a bit older, having been in the market for close to 10 years now (?), while HSAs were only introduced in 2004.

    From the individual consumer perspective, the HSA offers a lot of flexibility. It can be used for immediate or upcoming qualified medical expenses, or it can be treated like a “medical IRA”; the money can continually be rolled over, it is portable, and it can be invested for interest-bearing benefits. With an HSA, you also have the flexibility to choose how much you want your pre-tax contributions to be, and whether they are done each pay check or as one-offs. HRAs, on the other hand, also provide some unique benefits. If you’re more of a “hands-off” kind of consumer, this plan doesn’t require as much management. It functions similarly to an HSA in that CDHP plan rules apply, the money is often allowed to rollover, and it involves pre-tax money being used to pay for qualified healthcare expenses. But with an HRA, the account is not portable and the administration is usually fully done by the Employer. In many cases, preventive care is covered and then the Employer funds additional qualified expenses up to a certain dollar amount, before the deductible kicks in. An additional benefit of the HRA is that it can be used in conjunction with an FSA, with the FSA predefined as paying first or last, depending on one’s preference.

    Both of these products have achieved significant growth in the last 5 years, and projections are that they will continue to grow rapidly, as Healthcare spending and consumer cost-sharing continue to rise. According to National Health Expenditure reports for 2007, out-of-pocket consumer spending increased 6.7% to over $269 Billion, an almost 20% increase since 2004. CDHPs (which are paired with HSAs and HRAs) have matched this increase, having risen to almost a 25% market share among private insurance plans. HSAs alone now cover more than 6 million lives through approximately 4.5 million accounts, and total more than $6 Billion in assets.

    Kirsten Trusko