HRA vs HSA: Key Differences Explained for Smarter Health Benefits

With the knowledge that healthcare premiums are expected to rise by 7 to 8% in 2025, employers are under pressure to deliver health benefits that alleviate their employees’ financial burden rather than add to it. 

Healthcare reimbursement arrangements and health savings accounts are both pre-tax ways to help employees pay for qualified medical expanded and out-of-pocket costs. But which is the right fit for your business? 

This guide explores HRA vs HSA, including the pros and cons of each, their eligibility criteria, and how employees can use them. 

What’s an HRA? 

A health reimbursement arrangement, or HRA, is a benefit that employers offer to their employees to help with health coverage costs, including their premiums and qualified medical expenses. The HRA model allows employees to make medical insurance purchases and request a reimbursement from their employer, within predefined annual contribution limits. 

HRAs are a pre-tax type of benefit, meaning the value of the contribution is deducted from the employee’s paycheck before federal income and employment taxes are applied. HRAs also offer tax benefits for employers as the contribution is not considered part of the employee’s taxable wages. 

Eligibility criteria for HRAs

Before you start researching HRA providers, double check you meet the eligibility requirements. 

• Employees must receive the HRA through their employer 
• HRAs must be applied consistently throughout an employee class; for example, all full-time employees within an HRA class must receive the same contribution, which may differ from seasonal employees in a different class
• Some types of HRA require enrollment in a group health plan 
• HRAs don’t cover reimbursements for medical expenses already covered by another health insurance vehicle, such as an HSA
• The IRS limits employer contributions depending on the type of HRA you offer 

5 types of HRAs

Some of the most common HRA types include: 

• Integrated HRA: Also known as a group coverage HRA, this works alongside a traditional employer-sponsored group health plan. It reimburses employees for out-of-pocket medical expenses like deductibles, copayments, or coinsurance not fully covered by the group health insurance. There are no federally mandated limits, but the employer sets the contribution amount.
• Qualified small employer HRA: A QSEHRA is specifically designed for small employers (fewer than 50 full-time equivalent employees) that do not offer a group health plan. The QSEHRA contribution limit is $6,350 for individuals and $12,850 for families in 2025. 
• Individual coverage HRA: An ICHRA allows employers to reimburse employees for the cost of individual health insurance policies or other qualified medical expenses. It provides an alternative to traditional group health insurance, offering flexibility for both employers and employees. There are no contribution limits associated with ICHRA.
• Excepted benefit HRA: An EBHRA is offered alongside a group health plan to reimburse employees for “excepted benefits” like vision or dental care. The EBHRA contribution limit for 2025 is $2,200. 
• Retiree HRA: This employer-funded arrangement allows retired employees to make plan-eligible medical expenses during retirement and then claim the money back from their former employer. There is no maximum contribution amount associated with RHRAs. 

What’s an HSA? 

A health savings account, or HSA, is another type of pre-tax benefit that allows individuals to save money for qualified medical expenses. Unlike HRAs, HSAs are owned by the individual and can be carried over from year to year. This means the HSA isn't tied to your employer; in fact, individuals can open their own HSA to save pre-tax dollars without contributing to an employer's plan.  

HSA vs FSA: What’s the difference? 

HSAs are often confused with another type of benefit—the FSA (after all, there’s only one letter in it.) While both are pre-tax accounts employees can use to cover their health insurance costs, there are striking differences between the two. 

HSAs require you to be enrolled in a high-deductible health plan (HDHP). They also require you to save money before you spend it, but once you’ve accumulated your pot, it’s yours. Your HSA is portable, so it doesn’t remain with your employer if you change jobs or retire. 

In contrast, FSAs are like a line of credit you can use to pay for deductibles, co-pays, and other medical expenses. Pre-tax money comes straight out of the paycheck and into the flexible spending account. Even if you don’t have enough funds saved up immediately, you can still make health-related purchases, so long as you’re on track to save the funds before the end of the year. Here’s the stinger: if you don’t use your entire contribution, you’ll lose any unused funds—they’re not carried over to the next plan year.  

In most cases, you’ll need to choose between using an HSA or an FSA— it’s not a mix and match situation. The exception to this role is if you have a limited-purpose FSA, which you can use in combination with an HSA to cover eligible dental and vision expenses. 

Eligibility criteria for HSAs

HSAs also have strict eligibility requirements for participants, including: 

• Employees (or individuals) must be enrolled in a high-deductible health plan to have an HSA 
• You can’t use any other type of health coverage 
• You must not be enrolled in Medicare 
• You can’t claim as a dependent through another person’s tax return 

How can employees use HRA and HSA funds? 

Employees can use their HSA and HRA funds as financial support for their healthcare needs. Here's what they can use each for: 

HRA eligible expenses 

The specific expenses eligible for reimbursement can vary depending on the employer's plan design. Some employers may restrict employees to using their HRA allowance for a specific set of expenses, while others might be more flexible. In either case, the eligible expenses must fall within IRS guidelines, which may include: 

• Premiums for individual health insurance policies, including those purchased through the Health Insurance Marketplace
• Medical expenses, including costs related to doctor visits, hospital services, and surgeries
• Prescription and over-the-counter medications  
• Dental and vision expenses, including dental cleanings, fillings, orthodontia, eye exams, prescription glasses, and contact lenses
• Medical equipment items like crutches, wheelchairs, and blood pressure monitors
• Preventive care services such as annual check-ups and vaccinations

HSA eligible expenses

Qualified medical expenses are also defined by the IRS, including: 

• Medical services payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners. 
• Prescription and over-the counter medications 
• Dental and vision care expenses including dental treatments, eye exams, contact lenses, and eyeglasses. 
• Medical equipment items such as crutches, hearing aids, and diagnostic devices. 
• Long-term care expenses  
• Insurance premiums, including long-term care insurance, health care continuation coverage (e.g., COBRA), health care coverage while receiving unemployment compensation, and for those over 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of employer-sponsored health insurance. 

A full list of eligible expenses is available via IRS Publication 502. 

HSA vs HRA: Choosing the right option for your needs 

Weighing up HRA vs HSA isn’t an easy call. What’s right for one organization and its people won’t be right for another. You’ll need to review your current offering and where it falls short, then decide how a health savings or health reimbursement account would best suit you and your employees. Consider the pros and cons of each: 

Pros and cons of HRA

Pros 

• Multiple types of HRA exist, including types such as ICHRA, which have no contribution limits 
• HRAs position organizations as an employer of choice, helping to attract top-tier candidates in the talent market 
• HRAs are entirely employer-funded insurance coverage, so employees keep more of their hard-earned cash to put toward their other financial commitment 
• Offers flexible coverage options for employers, using different classifications to group employees and offer reimbursement rates based on job-related criteria 
• Doesn’t require a high-deductible health plan 

Cons 

• Entirely employer-owned. Employees can’t transfer any remaining funds with them if they change jobs or retire
• Employees can’t add their own contributions to the HRA 
• HRA contributions differ depending on the type of health reimbursement arrangement (some are quite limited) 
• Employers define eligible expenses and may limit some types of spending 

Pros and cons of HSA 

Pros

• Employees can take unused funds with them if they change jobs or retire 
• Leftover balances automatically roll over to the next year with no expiration date on funds 
• Withdrawals aren’t taxed if you use them on qualified expenses 
• HSA funds can be invested into stocks, bonds, or other assets and grown tax-free
• Employees may also make HSA contributions with post-tax dollars. These can be deducted from the gross income on their tax returns to reduce the annual tax bill. 

Cons

• Requires enrolment in a high-deductible health plan (HDHP) 
• High-deductible plans aren’t for everyone. Your personal situation will dictate whether you can afford to pay medical costs upfront. 
• High deductible costs may dissuade some employees from seeking treatment when they need it 
• Income tax plus a 20% penalty will be applied to non-qualified withdrawals 
• Annual contribution limits apply to HSAs—these are $4,300 for individuals and $8,600 for families in 2025. 

Deliver HRAs or HSAs with Benepass 

We’ve looked at the similarities and differences between HRA and HSA models. The only thing left to do is decide the best way to distribute health benefits to your employees. 

Choose from: 

• Benepass HSA: Employees elect their contributions during open enrolment which are deducted straight from their pay packets. They can view their HSA either from the Benepass web or mobile app. ‍
• Benepass HRA: This is a flexible, card-first approach to reimbursement so employees use their prescribed allowance to pay their healthcare costs without going out of pocket. 

Ready to offer exceptional health benefits from a flexible people-first platform? Book a free Benepass demo today or contact sales@getbenepass.com to connect with a benefits specialist.