TWO VEHICLES WILL DRIVE BENEFIT COST REDUCTION FOR EMPLOYERS

Both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are tax-advantaged tools that help individuals pay for out-of-pocket medical expenses for themselves and their families through set-aside funds. However, there are some key differences.

It is highly recommended that employer groups under 50 consider the HRA as a cost containment strategy, with HSA as an added tax bonus incentive.

What HRAs and HSAs have in common

The main thing these tools have in common is their tax-friendly design. It's why we love them!

HSAs have three tax advantages:

• contributions made by employers are pre-tax, contributions made by the employee are tax-deductible.
• you don't pay tax on account growth
• withdrawals from the account (to pay for eligible expenses) are not taxed

Real world example: Since HSA contributions don’t count toward your tax burden, you will be taxed as though you make less money. So, for example, if you make $40,000 per year and you contribute $3,000 into your HSA, you will be taxed as though you make $37,000, thus lowering your tax burden.

As the cost of medical care in the United States grows, so does the value of tax-free money to employees. Unfortunately, the federal government puts limits on two of its most popular tax-free vehicles—in 2019, the HSA has limits of $3,500 and $7,000 for single employees and employees with families, respectively, and the QSEHRA has limits of $5,150 and $10,450.

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