The Differences Between Health Care Accounts - Michael Smeriglio

Understanding the Differences Between Health Care Accounts

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Health care costs continue to be in the news and on everyone’s mind. As a result, tax-friendly ways to pay for these expenses are very much in play for many people.

The three primary health care accounts are Health Savings Accounts (HSA), Flexible Spending Arrangements (FSA) and Health Reimbursement Arrangements (HRA).

All provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three types of health care accounts? Here’s an overview of each one:

Health Savings Accounts (HSA)

If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,400 for self-only coverage and $6,750 for family coverage for 2017. Plus, if you’re age 55 or older, you may contribute an additional $1,000.
You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

Flexible Spending Arrangements (FSA)

Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,600 in 2017. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2½-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

Health Reimbursement Arrangements (HRA)

An HRA is an employer-sponsored arrangement that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Please bear in mind that these health care accounts could be affected by health care or tax legislation. Contact our firm for the latest information, as well as to discuss these and other ways to save taxes in relation to your health care expenses.


Mike Smeriglio III is a financial specialist. A licensed CPA since 1985, Mike has been providing tax preparation services to individuals and businesses for more than 30 years through his firm located in Greenwich, CT.