HRAs or HSAs, How Does an Employer Decide?

Introduction

As health care costs soar, employers are forced to find ways to (1) cut costs and/or (2) shift more of the costs to participants.  They are accomplishing this by increasing deductibles, co-pays and co-insurance amounts and reducing benefits.  The theory is if participants are more responsible for paying health expenses they will be more responsible with their own dollars.

Two vehicles that employers are considering in cutting costs and/or shifting more of the cost to employees are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs).  Because the interplay between these two vehicles in any year is very limited, an employer must decide which one is best for its situation.  To assist an employer in deciding between HRAs and HSAs, the following discussion compares the important features of each in a question and answer format and then discusses their advantages and disadvantages.

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