HRA vs. HSA vs. FSA comparison chart

As healthcare costs continue to rise, you may wonder how you can continue to offer employees at your small or midsize business a competitive health benefit without breaking your budget. One way to help employees with increasing health costs and recruit and retain top talent is with an account-based health plan (ABHP).

ABHPs—which include health reimbursement arrangements (HRAs), health savings accounts (HSAs), and healthcare flexible spending accounts (FSAs)—are budget-friendly and flexible ways to cover your employees' out-of-pocket healthcare expenses. But, each benefit has its own rules and regulations, so it’s vital to understand how they work before selecting and implementing one.

In this article, we’ll compare HRAs, HSAs, and FSAs and explain their differences to help you choose the best option for your organization.

Takeaways from this blog post:

• Three types of account-based health plans (ABHPs)—health reimbursement arrangements (HRAs), health savings accounts (HSAs), and health flexible spending accounts (FSAs)—are used to offer employees tax-free money to pay for qualifying medical expenses.
• HRAs are employer-owned notional accounts that employers set up to reimburse employees for healthcare costs. HSAs are employee-owned bank accounts that allow pre-tax savings for future healthcare expenses. FSAs are employer-owned accounts that have rollover limitations and require employees to forfeit unused funds at the end of the year.
• Health stipends are an alternative to traditional ABHPs. While they don’t have tax benefits, employers can offer their employees taxable money to pay for qualified health expenses that ABHPs may not cover.

Why should I offer an account-based health plan (ABHP)?

Before we dive in, let’s cover why you should consider ABHPs as part of your health benefits package.

ABHPs allow employers to use pre-tax dollars to help their employees pay for healthcare costs, meaning employees save on out-of-pocket expenses. ABHPs are flexible, so employers can design their benefits to best fit their organization's and employees' needs.

In most cases, you can pair a group health insurance plan with a medical spending account to supplement your existing insurance.

However, you can use some types of account-based health benefits as a total replacement for a group policy, offering employees only a medical spending account. Under this type of benefit, employees can use their employer dollars to buy an individual health insurance plan, pay for medical expenses, or even opt into a spouse’s health insurance policy.

What account-based health plan options are available?

The three tax-advantaged benefits we’ll go over are the HRA, HSA, and healthcare FSA. Each one allows employers to offer tax-free money to employees for qualifying medical expenses, but each ABHP works a little differently.

Health reimbursement arrangement (HRA)

First up is the HRA. Instead of an account you or your employees contribute to, this is an arrangement between you and your employees. You agree to offer your employees a specific monthly allowance for qualifying healthcare costs, like prescription drugs, over-the-counter medicine, mental health counseling, and sometimes health insurance premiums, depending on the type of HRA you offer.

Once your employees incur an eligible expense, you reimburse them for the cost, unlike HSAs and FSAs. In most cases (such as if you use PeopleKeep to manage your HRA), any unused HRA funds are forfeited and stay with you at the end of the year.

HRAs also have tax advantages. HRA payments are tax-free to the employer and can also be income tax-free to your employees as long as they have minimum essential coverage (MEC).

PeopleKeep enables employers to offer three types of HRAs that cater to any organization’s size or budget:

1. A qualified small employer HRA (QSEHRA) is for small businesses and nonprofits with fewer than 50 full-time equivalent employees (FTEs) that don’t have a group health plan. Unlike other HRAs, QSEHRAs have annual maximum contribution limits. You must offer the QSEHRA to all your full-time W-2 employees. Your part-time employees can also participate if they receive the same allowance as your full-time employees.
2. The individual coverage HRA (ICHRA) is for organizations of all sizes that want to offer a total replacement ABHP. The ICHRA has no maximum contribution limit and allows employers to customize their benefits based on 11 employee classes. Only employees with an individual medical plan with MEC can participate in the ICHRA. If your organization has 50 or more FTEs, offering an affordable ICHRA can help you satisfy the Affordable Care Act’s employer mandate.
3. The group coverage HRA (GCHRA), or an integrated HRA, allows you to supplement your existing group health insurance policy. Only employees who opt into your employer-sponsored insurance plan can participate. Like the ICHRA, GCHRAs have no minimum or maximum contribution limits and are customizable using employee classes.

Health savings account (HSA)

Next is the HSA. An HSA is a special bank account that allows participants to save pre-tax dollars for future medical expenses. Banks or HSA administrators typically issue account holders a debit card to pay for healthcare items and other eligible costs. Either an individual or an employer can open an HSA. But in either case, the individual always owns it.

Unlike an HRA, both you and your employee can contribute funds to this account. So it’s a combination of your employee’s money and money provided by your organization.

To contribute to an HSA, the employee must enroll in an HSA-qualified high deductible health plan (HDHP). As part of the One Big Beautiful Bill Act (OBBBA) passed by Congress on July 3, 2025, all bronze and catastrophic plans sold on public health exchanges now qualify as HSA-eligible HDHPs¹.

All contributions remain in the HSA indefinitely until an employee uses them. There’s no vesting schedule or tax penalty if the money goes unspent, and the funds roll over yearly. However, annual contribution limits control how much you can contribute in a given year.

Employees aged 65 and older can use their HSA for anything without a penalty. Those younger than 65 can only withdraw HSA funds tax-free to pay for qualified out-of-pocket expenses. If they spend the funds on any ineligible items before they turn 65, they must pay federal income taxes on the money plus a 20% penalty.

Flexible spending account (FSA)

Finally, there’s the healthcare FSA. An FSA is another benefit plan that allows for tax-free reimbursement of qualified healthcare expenses. Like an HRA, health FSAs are also employer-owned accounts. Employees contribute to their FSA through payroll deductions (up to the annual contribution limit) taken out on a pre-tax basis. Just like an HSA, the employer can contribute funds as well.

But unlike an HSA, FSAs are tied to employment, so employees can’t keep the funds if they leave your company.

There are also limitations to rollover amounts. Employers may allow up to $500 to roll over at the end of the year. Otherwise, FSAs have a “use it or lose it” provision. This means the employee must forfeit their unused balance at the end of the year.

HRA vs. FSA vs. HSA comparison chart

Alternatives to account-based plans

Due to their unique rules and regulations, account-based plans may only work for some organizations. If you find that neither an HRA, HSA, or FSA is a great fit for your business or nonprofit, there is a more flexible alternative available.

A health stipend is an excellent, hassle-free alternative to HRAs, HSAs, or FSAs. You can offer this taxable benefit to your employees as an upfront payment through a benefits expense card that’s tied to a lifestyle spending account (LSA). Or you can manage it like an HRA and reimburse your employees for their medical costs.

Like an HRA, health stipends enable employees to use funds on various expenses, including vision care and dental expenses, insurance premiums, prescription medications, and other out-of-pocket medical costs. But, because they have fewer regulations and eligibility requirements, employees can use them for practically any eligible items you allow.

You can also provide a taxable wellness stipend to offer a benefit for non-medical care expenses, such as gym memberships and wellness apps.

A health stipend is an excellent choice for organizations employing 1099 contractors or international workers, as they’re eligible to participate in stipends. If you have workers who receive advance premium tax credits (APTC), a health stipend allows them to use their benefits while remaining eligible for their credits.

The IRS considers all employee stipend allowances taxable income. So, you must report them on your employees’ Form W-2s so they can pay income taxes on the amount at the end of each year.

The federal government doesn’t consider stipends a formal health benefit. Therefore, they don’t replace group health insurance or an ICHRA for organizations subject to the ACA’s employer mandate.

Conclusion

As an employer, you need to know all your options when designing a competitive health benefit that allows you to manage costs. Several attractive options are available outside of traditional health plans to help you offer a quality health benefit on any budget. Whether you go with an HRA, HSA, FSA, or health stipend, your employees will get the flexible coverage they expect, and you’ll get an affordable option your organization can manage.

This blog article was originally published on January 1, 2017. It was last updated on July 21, 2025.

1. H.R.1 - One Big Beautiful Bill Act