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Hong KongFSA, HSA and HRA compared
An FSA is employee-funded through salary reduction and is generally use it or lose it. An HSA is owned by the individual, requires a qualifying high deductible plan, and the balance carries forward and moves with them. An HRA is employer-funded, employer-owned, and reimburses only.
Three acronyms that look like variations on one idea and are not. The differences that matter are who put the money in, who owns it, and what happens to it when the year ends or the job does.
The three, on the questions that separate them
| FSA | HSA | HRA | |
|---|---|---|---|
| Who funds it | The employee, by salary reduction, and sometimes the employer | The individual, the employer, or both | The employer only |
| Who owns it | The employer holds it for the employee | The individual | The employer |
| Requires a specific health plan | No | Yes, a qualifying high deductible plan | No |
| Unused balance at year end | Generally forfeited | Carries forward | Employer decides whether it carries |
| Portable when the job ends | No | Yes | No |
| Can it be invested | No | Yes | No |
Look down the ownership row. That single row explains portability, carry-forward and investment in one go, and it is the fastest way to hold the three apart. Employee owns it, so it goes with them and it keeps growing. Employer owns it, so it does not.
The FSA and use it or lose it
An employee elects an amount for the year, the employer reduces salary by it, and the money is available to reimburse qualifying costs. Money not spent by the end of the plan year is generally forfeited, which is why the election is a real decision and why employees rush to spend the balance late in the year.
Plans may permit limited carryovers or a grace period. Those are federal rules that have changed over time and we hold no federal tax source, so this page does not state the amounts.
The HSA and its condition
The HSA is the only one of the three with an eligibility requirement attached to the health plan itself: the individual must be covered by a qualifying high deductible health plan and generally must have no other disqualifying coverage. That pairing is deliberate. A high deductible plan makes the first slice of care the member's own problem, and the account is where the money to meet it comes from.
- The account belongs to the individual, not the employer or the insurer.
- Contributions may come from the individual, the employer, or both, up to a federal limit.
- Unused balances carry forward indefinitely and can be invested.
- It travels with the individual through job changes and into retirement.
The high deductible health plan is the insurance. The health savings account is the account. A stem can describe someone with a qualifying plan and no account, which is perfectly possible, and the exam uses that to test whether you know which is which.
The HRA, which is the employer's arrangement
An HRA is funded entirely by the employer, owned by the employer, and used to reimburse the employee's qualifying medical costs. The employee contributes nothing and takes nothing away. Whether an unused balance carries into the next year is the employer's choice, set out in the plan document.
An employee leaves her job. She has an unused balance in an account she funded through salary reduction, and a separate account funded by her employer that reimbursed medical costs. What happens to each?
- Both go with her, since both were for her benefit
- Neither goes with her: the salary reduction account is forfeited and the employer account stays with the employer
- The salary reduction account goes with her; the employer account is forfeited
- Both stay with the employer but must be paid out in cash
Where they sit
- Section
- V, types of accident and health policies, 16 questions
- Listed as
- Medical expense, sub-items 6, 7 and 8
- Sub-item 7 wording
- High deductible health plans and related health savings accounts
- Our estimate
- 1 or 2 questions, ours and not published
Pearson lists the high deductible plan and the health savings account in the same sub-item, which is the outline confirming that they are a pair. FSAs and HRAs get sub-items of their own on either side of it.
The opinion, and the concession
This is the most confusable trio in the health half and it is entirely learnable in ten minutes if you learn ownership first. Candidates who start with funding sources get lost, because employers can fund all three. Ownership is the discriminator and everything else follows from it.
The concession: contribution limits, carryover amounts, grace periods and the definition of a qualifying high deductible plan are federal figures that change annually. We hold no federal tax source and publish none of them. Any prep material that prints a limit is telling you what it was in the year it was written, and this exam's outline does not ask for any of them.
Common questions
What is the main difference between an FSA and an HSA?
Ownership. An FSA is held by the employer for the employee and unused money is generally forfeited at year end, with nothing portable when the job ends. An HSA belongs to the individual, carries forward indefinitely, can be invested and travels with them.
Do you need a specific health plan to have an HSA?
Yes. An HSA requires coverage under a qualifying high deductible health plan, and generally no other disqualifying coverage. That pairing is the point: the plan leaves the first slice of care to the member, and the account is where the money to pay it comes from.
Who funds a health reimbursement arrangement?
The employer, entirely. The employee contributes nothing, the employer owns the arrangement, and it reimburses qualifying medical costs. Whether an unused balance carries into the following year is set by the employer in the plan document rather than by the employee.
Can an employer contribute to an employee's HSA?
Yes. Contributions can come from the individual, the employer or both, within the federal annual limit. Employer funding does not change ownership: the account still belongs to the employee and still goes with them when they leave, which is what separates it from an HRA.