Key takeaways

• An HRA is an employer-funded and employer-owned reimbursement arrangement; an HSA is individually owned and can be self-funded or employer-funded.
• An HRA and an HSA can both help cover qualified healthcare expenses, but they differ in ownership, funding, eligibility, and portability.
• HRAs may be right for those receiving significant employer contributions; HSAs may be better for those prioritizing portability and long-term healthcare saving.

Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are two types of tax-advantaged accounts that can help households cover eligible medical expenses. With out-of-pocket healthcare spending up 5.9% in 2024 and projected to grow 4.7% annually through 2034, health accounts are one way that companies are helping their employees address the cost of medical care.^1,2

If you’ve been offered an HRA or HSA through your employer or are curious about opening a health account on your own, then it’s important to understand how each account operates. Here is a comparison of HRAs and HSAs, the benefits and drawbacks of each account, and considerations for deciding which health account may be right for you.

What are HRAs and HSAs?

HRAs and HSAs are health accounts that offer tax advantages while helping cover out-of-pocket healthcare expenses. These expenses can range from copays and prescription medications to dental and vision care, depending on the plan. Certain plans may also allow funds to be used for insurance premiums and care for spouses and dependents.³ It’s important to check your plan details for a complete list of eligible expenses.

Here is a quick overview of HRAs and HSAs:

• Health Reimbursement Arrangement (HRA): A group health plan set up and funded by an employer that reimburses employees for qualified medical expenses, up to the amount available under the plan. Employers determine the amount available, subject to any applicable limits. Depending on the plan, employees may use an HRA card or submit proof of eligible expenses for reimbursement.
• Health Savings Account (HSA): A tax-advantaged personal account available to eligible individuals with HSA-compatible health coverage to help pay for qualified medical expenses.⁴ Individuals and their employers, when applicable, can contribute to the account, subject to annual contribution limits. Account holders can take distributions to pay or reimburse themselves for qualified medical expenses and should retain documentation of those expenses.

An HRA and HSA are both designed to cover out-of-pocket medical expenses. However, they differ in who owns and contributes to the account, along with eligibility requirements and account portability. Understanding the benefits and drawbacks of each health savings account may help you decide which one to use — or perhaps both.

Read more: HSA, FSA & HRA reimbursement explained

HRA vs. HSA: Side-by-side comparison

The key differences between HRAs and HSAs are outlined in the table shown below.

* State income taxes may still apply. HSA funds used for non-qualified medical expenses may be subject to applicable federal and state income taxes and/or penalties.

HSA eligibility is dependent on health coverage

Those enrolled in a high-deductible health plan (HDHP) or certain Bronze and Catastrophic Marketplace plans may be eligible to open an HSA. This includes individuals who are self-employed, freelancers, or unemployed. An employee can also opt to open an HSA with a provider of their choosing, regardless of whether their employer offers one.⁵ HRAs, however, are only available to eligible employees of participating companies. They can’t be opened outside of an employer or by those who are freelance or self-employed.

HRAs are employer-funded and maintained

HRAs are entirely funded and maintained by the employer, who decides how much to contribute. They can also determine what additional expenses an HRA can be used for outside of the standard items.

Employer contributions are typically made available to employees at the beginning of the plan year. This differs from HSA funds, which are made available as they are contributed. Employers are also not required to contribute to their employees’ HSAs. An individual typically funds their HSA using their own money, regardless of employer contributions. They can choose how much to contribute to their account while staying under the annual HSA contribution limit.

HSAs are individually owned and offer portability

HSAs, whether opened through an employer or individually, are owned by the person whose name is on the account. Unlike an HRA, which is tied to the employer, an HSA remains in the individual’s possession regardless of their employment status. Existing funds can generally continue to be used for qualified medical expenses, but new contributions may be made only while the account owner meets HSA contribution eligibility requirements.

With an HRA, unused funds generally remain with the employer when an employee leaves their job, although plan termination provisions may provide for continued benefits in certain circumstances. Some HRAs may also provide benefits to former employees or retirees, depending on the plan.

HSAs offer a triple tax advantage

The triple tax advantage of an HSA makes it one of the most tax-efficient savings tools available. Contributions, any investment growth, and qualified withdrawals may be federal income tax-free, offering immediate and long-term tax savings. State income taxes may still apply. HSA funds used for non-qualified medical expenses may be subject to applicable federal and state income taxes and/or penalties.

HRAs can offer similar benefits, including tax-free contributions and withdrawals, but do not typically allow employees to invest their funds.

Standard HRAs have no contribution limits

Standard HRAs do not have annual contribution limits, while HSAs have a limit of $4,400 for individual coverage and $8,750 for family coverage in 2026. Other types of HRAs, such as QSEHRAs and EBHRAs, have their own contribution limits. A Qualified Small Employer HRA (QSEHRA) for small businesses has a limit of $6,450 ($13,100 for family coverage) in 2026. The contribution limit for an Excepted Benefit HRA (EBHRA), which helps pay for additional coverage, is $2,200 for both individual and family coverage.

Unused HSA funds can be rolled over and invested

At the end of the year, any unused HSA funds can be left in the account and invested. Carrying over this money to the next year can help cover larger medical expenses that may arise. When invested, these funds may continue to grow, and, after age 65, can be used penalty-free for non-medical expenses, though taxes may still apply. Before this age, nonqualified withdrawals are subject to a 20% penalty as well as ordinary income tax.

Alternatively, HRA plans offer limited rollovers, and employees generally cannot invest the money in their account. Employers generally determine the maximum amount that employees are allowed to roll over to the next year. Although some HRA plans offer continued support to retirees, or transfers of unused funds into a retirement plan, this depends on the employer. ⁶

Can you have both an HSA and an HRA?

There are certain HSA-compatible HRAs that allow individuals to have both types of health accounts. These typically include limited-purpose, post-deductible, and premium-only HRAs used for expenses related to dental, vision, prescriptions, or health insurance premiums. Retiree-only HRAs may also be HRA-compatible, but they are only available after you’ve retired. It’s important to check with your HRA and HSA administrators before making the decision to use both types of accounts.⁷

HRA vs. HSA pros and cons

Understanding the strengths and weaknesses of HRAs and HSAs can help when deciding which health account is right for you.

HRA advantages and drawbacks

• Advantages: guaranteed employer contributions, potential immediate help with deductibles or other costs, no employee contribution requirement.
• Drawbacks: employer-owned and operated, the employee cannot contribute or invest funds, limited portability and rollovers, may require employees to pay out-of-pocket before receiving reimbursements.

HSA advantages and drawbacks

• Advantages: individual ownership, portability when changing jobs, federal tax advantages, contribution flexibility, potential to roll over and invest funds.
• Drawbacks: eligibility depends on enrollment in an HSA-compatible health plan, employer contributions are not guaranteed, contribution limits apply, potential taxes or penalties for nonqualified use.

Choosing which health account is right for you

For many, the decision to use an HRA or HSA comes down to weighing short-term financial needs against long-term savings goals. HSAs, while offering investment flexibility and the opportunity to build wealth, can be more expensive to maintain and fund. This isn’t always feasible for those supporting large households or just beginning their careers. For some, it may be preferable to have their account managed and funded entirely by their employer.

When an HRA may be the right choice

An HRA might be better when:

• Your company offers substantial employer contributions to employee HRAs.
• You have the option to enroll in an HSA-compatible HRA, allowing you to receive employer HRA contributions while still being able to use your HSA.
• The plan has lower overall expected costs and worst-case total costs than an HSA.
• Managing short-term expenses and receiving guaranteed employer contributions matters more than long-term saving.

When an HSA may be the right choice

An HSA may be better when:

• You are already enrolled in, or plan to be enrolled in, an HDHP or another HSA-compatible plan.
• Account portability is a priority, especially if you are self-employed, freelance, or expect frequent job changes.
• Long-term saving and investment growth matter more than guaranteed employer contributions.
• You are financially prepared to fund your HSA account and cover your health plan deductible and other out-of-pocket health care costs.

Before choosing to open an HRA, HSA, or both, it’s important to understand your current financial picture. If you haven’t already, consider setting financial goals for yourself and choosing a health account that supports these goals. You can also use a budget calculator to estimate your monthly cash flow and determine what funds can be allocated to healthcare expenses.

Read more: FSA vs. HSA: What’s the difference?

FAQ

Can I use my HSA for my spouse?

Yes, HSA funds can be used to cover your spouse’s eligible healthcare expenses, even if your spouse is not covered under your HDHP. You and your spouse can also still open and contribute to your own HSAs. However, you cannot use funds from both accounts to reimburse the exact same expenses — referred to as double dipping.⁸

How do you get an HSA or HRA reimbursement?

The process for accessing funds differs between HRAs and HSAs. For HRAs, you generally submit these receipts or other documentation to your provider and wait for reimbursement. Each plan varies in how long you have to file a reimbursement claim after making a purchase or payment.

With an HSA, account holders can withdraw funds to pay or reimburse themselves for qualified medical expenses. They should keep receipts or other records to document qualified expenses. Nonqualified withdrawals may be subject to taxes and penalties.

Read more: HSA, FSA & HRA reimbursement explained

How do you open a health savings account?

To open a health savings account (HSA), you must meet HSA eligibility requirements and be covered by an HSA-compatible health plan. This is usually a qualifying high-deductible health plan (HDHP). Beginning in 2026, certain Bronze and Catastrophic Marketplace plans may also be HSA-compatible.

Once you’ve enrolled in an HSA-eligible health plan, you can open an HSA with your employer or an outside provider. Employers offering HSAs should provide an opportunity to enroll during the onboarding process or when you become eligible. To enroll in an HSA outside of your employer, first check with your health insurance provider for potential resources or even partnerships with financial institutions that may offer HSAs. Otherwise, you can search online for HSA providers and follow their steps for enrollment.

Can an HSA be used for health insurance premiums?

Generally, an HSA cannot be used to pay health insurance premiums, with certain exceptions, including some premiums after age 65. Nonqualified withdrawals may be subject to taxes and penalties.