HRAs vs. FSAs

How is a Health Reimbursement Arrangement different than a Flexible Spending Account?

There is a common misconception that an HRA is just an FSA without the use-it-or-lose it rule. While on the surface that may seem so, it is definitely not true.

The following are the primary differences:

No employee contributions. An HRA is funded solely by the employer. No employee contributions are allowed.
No use-it-or-lose rule. When you participate in an FSA, you have to be careful in estimating your expenses because if you do not use all the money you contributed, you will lose it at the end of the plan year. In an HRA, the employer has the option of letting you carry-over all or a portion of your unused funds.
No uniform coverage rule. In an FSA, the entire amount you elect is available for reimbursement on the first day of the plan year. However, in an HRA, you can only be reimbursed for the amount the employer has contributed to date less any other reimbursements you have received. Your employer has the option of contributing monthly, quarterly, or annually.
No mandatory twelve-month plan year. While most employers will have a twelve-month coverage period, it is possible to have a shorter coverage period.
No requirement that expense must be incurred during the plan year. The regulations do not require the expense to be incurred during the plan year; but you must have been a participant in the HRA when the expense was incurred. However, your employer has the option of allowing this or not.

Your employer will furnish you with a Summary Plan Description explaining these points.

Can I participate in both an FSA and HRA?

Yes, if your employer sponsors both an FSA and an HRA, and you meet the eligibility requirements.