HRA, HSA and FSA - Changes Under Health Reform

Editor's Note: This article was written prior to Technical Release 2013-03 and parts of the article may no longer be accurate. For an updated article, see: HRAs, HSAs and FSAs in 2014 - Changes Under Health Reform (Updated).

The Affordable Care Act (known as ACA or health reform) was signed into law in 2010 and impacts many areas of health care and health insurance, including medical reimbursement programs such as HRAs, HSAs and FSAs. Here's an overview of how health reform impacts HRA, HSA and FSA programs.

What does HRA, HSA, FSA Stand for?

HRA = Health Reimbursement Arrangement

HSA = Health Savings Account

FSA = Flexible Spending Account

HRA, HSA, FSA - Changes Under Health Reform

Beginning January 1, 2011:

Over-the-counter (OTC) medications are no longer eligible for reimbursement from a Flexible Spending Account (FSA), Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA), unless obtained with a prescription (except for insulin).
The excise tax for non-qualified HSA withdrawals doubled from 10% to 20%.

Beginning January 1, 2013:

FSA employee salary reduction contributions were limited to $2,500 per plan year, with future increases to allow for inflation.

Beginning January 1, 2014:

HRAs may need minor plan design changes to be ACA-compliant in 2014. HRAs will need to meet one of these five types of HRAs that are excluded from annual limit requirements outlined in health reform laws (PHS Section 2711):

"Integrated" HRAs: An HRA linked with a group health plan.
"Flexible Spending Arrangement" HRAs: A variation of a stand-alone HRA (as defined in section 106(c)(2)).
"Excluded" HRAs: An HRA that only reimburses non-essential health benefits (e.g. only premium expenses).
"Excepted" HRAs: An HRA that only reimburses limited excepted expenses (such as limited-scope dental).
"Retiree" HRAs: An HRA offered to retirees.

What does this mean for existing and new HRAs? If the existing HRA does not meet one of these five types, then minor plan design changes may be needed. New HRAs will simply be set up in an ACA-compliant way.

There are several other health reform regulations that impact health insurance, employers, individuals and HRA/HSA/FSA providers. For a full list of health reform changes see Health Care Reform Timeline 2010 - 2020.

HRA vs. HSA vs. FSA Comparison Chart

Here is an HRA, HSA, FSA Comparison Chart with health reform updates:

	HRA	HSA	FSA
Who May Contribute	Employer Only	Employer or Employee	Employer or Employee
Cost of Employer Contributions	Only pay for employee utilization (typically 25-50%)	100% paid regardless of utilization	100% paid regardless of utilization
Average Cost to Cover $2,000/year Deductible	$500-1,000	$2000	$2000
Maximum Annual Contribution	No Maximum	$3,300 (single) $6,550 (family) for 2014	Determined by Employer; Capped at $2,500 starting in 2013
Eligibility Requirements	None or Determined by Employer	Must have HSA-qualified health coverage ($1,250+ single / $2,500+ family deductible)	None or Determined by Employer
Each Employee Must Open a New Bank Account?	No	Yes	No
Tax Treatment	Tax-free	Tax-free	Tax-free
Medical Expenses Allowed	Health Insurance Premiums & IRC 213(d), as Determined by Employer	IRC 213(d) Expenses w/ No Employer Limitations	IRC 213(d) Expenses; but no Personal Health Insurance Premiums
Use for Non-Medical Expenses	None	None	None
Carryover of Unused Funds to Next Year	Determined by Employer (not to exceed 4x the annual HRA allowance to be ACA compliant)	Yes	No
Portable after Termination	Determined by Employer	Yes	No
Administrator	Employer or TPA	Employee	Employer or TPA
Cross-Compatibility	With HSA* or FSA	Limited-Purpose or Post-Deductible FSA or HRA	With HRA or HSA*
Employer Reporting	Employer Views Detailed Utilization Reports	No Tracking Possible	Employer Views Detailed Utilization Reports