HRA vs. HSA: Comparing Differences & Benefits

Employers have options to support employee well-being, especially when it comes to offering health benefits. Two popular choices are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). While HSAs and HRAs can help employees pay for medical expenses, they operate very differently. The more you understand these distinctions, the better prepared you’ll be in selecting a plan that fits your company’s needs.

What is an HSA?

Looking for a way to empower your employees? A Health Savings Account (HSA) is a powerful tool that helps employees with a high-deductible health plan (HDHP) take control of their healthcare finances, including being an account with multiple tax advantages.

Pros of an HSA

• Tax advantages: This is the big one. Contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are tax-free.
• Portability: Unlike some other benefits, the HSA is owned by the employee. That means if they change jobs or retire, the account goes with them.
• Long-term Savings: An HSA can be a great way to save for healthcare costs, especially in retirement. The funds can be invested, allowing them to grow over time, similar to a 401(k) or IRA.

Cons of an HSA

• Eligibility: The qualifications limit your health plan choices down to one. To contribute to an HSA, an individual must be enrolled in a high-deductible health plan (HDHP). This might not be the best fit for everyone, especially those with chronic conditions.
• Upfront Costs: With an HDHP, you have a higher deductible, meaning employees’ paychecks are smaller because there are more out-of-pocket medical costs before insurance kicks in.
• Recordkeeping: It’s the employee’s responsibility to track their qualified medical expenses and keep receipts. If funds are withdrawn for non-qualified expenses before age 65, they are subject to income tax and a 20% penalty.

What is an HRA?

A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses and, in some cases, health insurance premiums. It’s a flexible way for your business to provide a benefit that helps employees with out-of-pocket healthcare costs.

Pros of an HRA

• Employer-Funded: This is a major plus for employees, as the employer is the one contributing to the account. Employees don’t have to contribute to benefit from the arrangement.
•  Tax-Free Reimbursements: Reimbursements from an HRA for qualified medical expenses are tax-free for the employee, providing a significant financial benefit.
• Flexibility for Employers: Employers can customize their HRA offerings, tailoring the benefit to their business needs and their employees’ specific situations.

Cons of an HRA

• Not Portable: Since the employer owns the account, the funds are not portable. If an employee leaves the company, they typically lose access to the remaining HRA funds.
• Limited to Employer Rules: The employer determines which expenses are eligible for reimbursement, which can be more restrictive than other account types.
• No Employee Contributions: Employees are not allowed to contribute their own money to an HRA, so they can’t save more than what the employer provides.

Differences Between an HSA vs. HRA

A health savings account and a health reimbursement arrangement share one notable similarity: both are tax-advantaged accounts. From there, the two diverge, including the following differences:

Eligibility

Employees wishing to use an HSA must be enrolled in an HSA-qualified high-deductible health plan that meets minimum and maximum out-of-pocket thresholds as defined by the IRS. Plus, they cannot have other disqualifying health coverage (e.g., Medicare, a flexible spending account) nor be claimed as a dependent on someone else’s taxes. With an HRA, availability varies with the type of health plan an employee has.

Contributions

With an HSA, contributions could come from an employer and an employee but are governed by HSA contribution limits. For an HRA, the employer is the only one allowed to contribute and, although there is no limit, the employer can determine how much to put in the account.

Ownership

The employer owns the health reimbursement arrangement, which in many cases an employee loses access to any money in the account when leaving the company. A health savings account is owned and controlled by the employee, making it portable from job to job. Since the funds are transferrable, an employee never gets caught in the use-it-or-lose-it cycle.

With ownership of the HSA, an employee can invest the funds with the potential to grow savings. With HRAs that aren’t retiree HRAs, investment is not allowed.

HSA vs. HRA Employer Contributions

An employer can contribute to both an employee’s HSA and HRA, while an employee can only contribute to an HSA. With HSA contributions coming from both, it allows for shared responsibility in building healthcare savings.

Since an HRA is an employer-fueled plan, the size of the account for some plans, in terms of dollars, is mostly in the hands of the employer.

HSA Contributions

Contribution limits are in place for HSAs. The IRS set 2025 limits as follows: $4,300 for individuals and $8,550 for families. There is also an additional catch-up contribution for those ages 55 and older of $1,000.

HSA without a Section 125 Plan

Employers can also offer an HSA as a separate benefit, even without offering a Section 125 plan, commonly referred to as a cafeteria plan because of its menu of benefits offered to employees.

In this type of HSA, an employer gains the option of how to contribute: lump sum at the beginning of the year, smaller amounts per pay period, or a combination of the two where a deposit of upwards of half the full amount in a lump sum and then smaller contributions each pay period.

Employers should take note that contributing a lump sum might save time on administration but still might not be the best approach, considering that HSAs are transferable. An employee could leave the company at some point after the lump sum drops and take the money with them.

HSA with a Section 125 Plan

If your HSA is part of a Section 125 plan, employees will have options that include life insurance, adoption assistance, and certain health benefits. However, under Section 125, employers might not get to choose between contribution options. Instead, they may have to follow stricter state or federal regulations about the size and frequency of your contributions.

There are several benefits not allowed under cafeteria plans, so before offering a Section 125 plan, make sure you know exactly which benefits you can include.

HRA Contributions

HRAs have limits that depend on the type of plan an employer offers. In 2025, the Qualified Small Employer HRA (QSEHRA) limit is $6,350 for single coverage and $12,800 for family coverage. The Individual Coverage HRA (ICHRA) has no federal limits, giving employers more flexibility.

HSA vs. HRA Comparison Chart

HSA vs HRA: Which is Better?

HSAs offer unique tax advantages, including tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. HRAs also provide tax benefits, but they may not offer the same level of tax-advantaged growth as HSAs.

Both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are valuable tools for managing healthcare costs, but they work in different ways and meet different needs. An HSA is an individually owned account that lets you set aside pre-tax dollars for future medical expenses, making it a strong choice for those who want to save and invest over time. You control the account, and the funds roll over year after year—plus, you keep the money if you change jobs.

On the other hand, an HRA is funded entirely by your employer and is often more flexible in terms of what expenses can be reimbursed. There’s no need for a high-deductible health plan, and you don’t contribute your own money. HRAs are often used by employers to help cover out-of-pocket costs not paid by insurance.

Ultimately, the “better” option depends on your situation. If you value long-term saving and investment potential with maximum tax advantages, an HSA could be the way to go. If you’re looking for employer-funded help with immediate healthcare expenses and don’t want to worry about account management, an HRA might be more helpful. Many people benefit from having access to both, using the strengths of each to manage their healthcare costs more effectively.

Considerations for Choosing an HSA vs. HRA?

There are certain aspects to consider, including your company’s goals, before determining whether an HSA or an HRA would be best for your needs.

For an HSA:

• Do you want to attract and retain top talent? Offering long-term financial planning and investment options might help.
• Would your employees be comfortable with a high-deductible health plan (HDHP)?
• What could you gain from giving employees ownership over their healthcare dollars and the flexibility to take those funds with them if they leave?

For an HRA:

• Do you want control over the funds?
• Are you contemplating wanting to offer a flexible health benefit that can be used with a wider range of health plans?
• Would you want to cap your financial liability?

Can You Have an HRA and an HSA?

It is possible for an employee to have an HRA and an HSA, but with specific conditions. An individual with a general-purpose HRA cannot contribute to an HSA. However, an employee can have an HSA alongside a limited-purpose HRA, which can be used for dental or vision expenses.  

How Paycor Helps with HRA and HSA Plans

Managing health benefit plans can be complex, especially with varying regulations and reporting requirements. Paycor’s all-in-one human capital management (HCM) software simplifies this process by integrating benefits administration with payroll and HR solutions.

Paycor’s benefits administration software helps you manage plan eligibility, track enrollment, and process contributions, including HSA contributions. It also helps with the administrative tasks associated with HRAs. By using a single system, you can reduce manual errors and ensure that your HRA and HSA plans are managed accurately and compliantly.

Manage Your HSA and HRA Plans with Paycor

Ready to simplify your benefits administration and give your employees the health benefits they need? Paycor’s HCM platform can help you manage HRA and HSA plans with ease, so you can focus on what matters most: your people. Take a guided tour.

HSA and HRA Frequently Asked Questions

Do you still have questions about HRAs and HSAs? Learn more with our FAQs.