HSAs, FSAs, and HRAs: Which is best for my organization?

Written by: Josh Miner
Originally published on December 9, 2020. Last updated March 31, 2021.

As leadership teams evaluate small business health insurance options, many want to know how they can reimburse employees tax-free for medical expenses.

Currently, there are three primary medical expense reimbursement benefit options. To help clarify which benefit will help your organization achieve its goals, here's a simple breakdown of the three benefits.

In this article, we’ll cover:

See how the three compare with our downloadable comparison chart

Health Savings Accounts (HSAs)

An HSA is an individual bank account owned by an employee that allows for tax-free payment or reimbursement of eligible medical expenses.

While HSAs are often offered alongside a company-sponsored high-deductible health plan (HDHP), individuals can set them up and contribute to them on their own.

Here are the key HSA features and requirements:

  • Eligible medical expenses include unreimbursed medical care (as defined by the IRS) and insurance premiums only for unemployed individuals.
  • Employees must have a high-deductible health plan to open an HSA.
  • The account is employee-owned and employees take money with them when they leave the company.
  • Anyone may contribute to the account (both employer and employee)
  • There are annual contribution limits. For 2021, these limits are $3,600 for self-only and $7,200 for families.

By contributing to employees' HSAs, organizations can offer valuable tax-free money, which employees use on the healthcare services they prefer.

Note: HSAs can be offered in conjunction with HRAs. Find out how here.

Flexible Spending Accounts (FSAs)

Flexible spending accounts (FSAs) offer a tax-free way for employees to save for qualified medical expenses during a single year. FSAs can be paired with any group health policy or used alone. Funds expire if not used by the plan year-end.

Here is a summary of FSA features:

  • Eligible medical expenses include out-of-pocket medical expenses (as defined by the IRS), excluding insurance premiums.
  • The plan must be established by an employer.
  • Can be funded by employees or the employer.
  • Maximum annual contribution limit: $2,750 per employee.

Health Reimbursement Arrangements (HRAs)

A health reimbursement arrangement (HRA) is a company-funded health benefit used to reimburse employees for out-of-pocket medical expenses, potentially including individual health insurance premiums.

Currently, there are three HRAs organizations can use to offer health benefits to current employees:

  1. QSEHRA (qualified small employer HRA). The QSEHRA is best for employers too small to be subject to the ACA employer mandate who want to keep things simple and offer a single benefit to all W-2 employees. Employers can specify whether they want to offer this benefit to just full-time employees, or to full- and part-time employees.
  2. ICHRA (individual coverage HRA). The ICHRA is one of the most flexible plans on the market. It allows employers to set different allowances and determine eligibility based on classes, such as:
    1. Full-time
    2. Part-time
    3. Seasonal
    4. Temporary, who work for a staffing firm
    5. Salaried
    6. Hourly
    7. Employees covered under a collective bargaining agreement
    8. Employees in a waiting period
    9. Foreign employees who work abroad
    10. Employees in different geographic rating areas
    11. A combination of two or more of the above
  3. GCHRA (group coverage HRA). The GCHRA is best for employers who offer employees a traditional group health plan and want to assist employees with expenses like deductibles, copays, and eligible over-the-counter expenses.

Which healthcare reimbursement plan is right for you? Download our HRA comparison chart.


If your organization is looking to reimburse employees for medical expenses, there are three main types of reimbursement benefits to evaluate: HSAs, FSAs, and HRAs. Which is the right plan? The answer depends on a few factors such as which type of expenses the company would like to reimburse, how much the company wants to contribute (if any), and flexibility of the plan for the company and employees.

Download the HRA vs. HSA vs. FSA comparison chart.

This post was originally published on May 25, 2016. It was last updated December 9, 2020.

What questions do you have about how to reimburse employees for medical expenses? We’d love to hear from you. Leave a comment or question below.

Originally published on December 9, 2020. Last updated March 31, 2021.


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