The core difference: who sets it up and what it covers

An HRA (Health Reimbursement Arrangement) is an account your employer creates and funds to reimburse you for medical expenses. An HSA (Health Savings Account) is an account you own and control yourself, funded with your own money, that offers tax advantages. The biggest practical difference: your employer decides what an HRA covers and can change or cancel it anytime. With an HSA, you decide how to spend the money, and the account stays yours even if you change jobs.

Both accounts let you pay for medical costs with pre-tax dollars, which means you owe less income tax. But they work through different mechanics, have different rules about who can open one, and offer different protections if you leave your job.

Key Takeaways

  • An HRA is employer-owned and employer-funded; an HSA is employee-owned and employee-funded, and you keep it if you leave your job.
  • HRA funds typically expire at the end of the year if unused, while HSA funds roll over indefinitely and grow like a savings account.
  • You can only open an HSA if you have a high-deductible health plan; an HRA can be paired with any health insurance your employer offers.
  • An HRA reimburses you after you pay out of pocket; an HSA lets you pay directly from the account at the pharmacy or doctor's office.
  • If your employer closes an HRA, you lose the money; if you leave a job with an HSA, the account and all its funds move with you.

How money flows in and out of each account

With an HRA, your employer deposits money into the account on your behalf. You pay for a medical expense out of pocket, then submit a receipt or claim form to your employer's benefits administrator, who reimburses you. The money is not yours until you spend it and get reimbursed. If you do not use the HRA balance by the end of the plan year, most employers let that money expire — though some allow a short grace period or let you carry over a small amount.

With an HSA, you contribute money directly from your paycheck (usually through payroll deduction) or deposit it yourself. You receive a debit card or checkbook linked to the account and can pay for may be able to access medical expenses immediately, without waiting for reimbursement. Any money you do not spend stays in the account and earns interest or investment returns. You can let it grow for years, even into retirement, and the balance is always yours.

may be able to access: who can actually open each account

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP) — a specific type of insurance with a higher annual deductible than standard plans. You cannot have other health coverage at the same time (with narrow exceptions for dental, vision, and accident plans). You also cannot be claimed as a dependent on someone else's tax return, and you cannot be enrolled in Medicare. These rules are set by federal tax law and do not change.

An HRA has no such restrictions. Your employer can offer an HRA to employees on any health plan — whether it is a high-deductible plan, a PPO, an HMO, or anything else. Your employer sets the rules: who is may be able to access, how much they contribute, what expenses are covered, and whether the account rolls over. Because the employer owns the account, they have broad freedom to design it however they want.

What expenses each account can cover

Both accounts can reimburse the same basic medical expenses: copays, coinsurance, deductibles, prescription drugs, dental work, vision care, mental health treatment, and many other costs. The IRS publishes a list of may be able to access expenses, and both HRAs and HSAs follow it.

The difference is in the details. An employer can restrict an HRA to cover only certain expenses — for example, only copays and deductibles, not dental or vision. They can also exclude expenses that the IRS would normally allow. An HSA has no such restrictions: if the IRS says it is may be able to access, you can pay for it from your HSA. This flexibility is one reason HSAs are attractive to people who know they will have specific medical needs.

What happens to the money if you leave your job

If you leave your job or your employer cancels the HRA, you lose access to the account. Any unused balance stays with your employer — you cannot take it with you or roll it into another account. Some employers will pay out the balance as a lump sum, but they are not required to. This is the biggest risk of an HRA: the money is not truly yours until you use it.

An HSA is portable. When you leave your job, the account and all its money come with you. You can keep contributing to it if you remain on a high-deductible plan, or you can stop contributing and let the balance sit. The money never expires, and you can use it years later in retirement. This portability makes an HSA function more like a personal savings account than a benefit tied to employment.

Tax treatment and investment options

Money in both accounts is not subject to income tax when contributed, and withdrawals for may be able to access medical expenses are not taxed. This is the core tax advantage of both accounts.

An HSA offers an additional feature: if your account balance grows large enough, you can invest it in stocks, bonds, or mutual funds, just like a retirement account. The investment gains are not taxed as long as you use the money for medical expenses. An HRA typically does not offer investment options — the money usually sits in a cash account or earns minimal interest.

When each account makes sense

Choose an HRA if your employer offers one and you want simplicity. You do not have to manage the account or make contribution decisions — your employer funds it. If your employer is generous with the contribution amount, an HRA can cover a significant portion of your medical costs with no effort on your part.

Choose an HSA if you want long-term flexibility and control. An HSA is best if you are healthy and do not expect large medical expenses in the near term, because you can let the money accumulate. It is also the better choice if you might change jobs, because you keep the account. If you are self-employed or have a spouse who is, an HSA is often your only option for a tax-advantaged medical savings account.

Some employers offer both an HRA and an HSA-compatible plan. In that case, you typically cannot use both in the same year — you choose one. Read your employer's benefits guide to see what you are offered and what the contribution amounts are.

Frequently Asked Questions

Can I use an HRA and an HSA at the same time?

Not in the same year. If your employer offers both, you choose one. However, if you have an HSA from a previous job and your new employer offers an HRA, you may be able to keep the HSA but not contribute to it while you are on the HRA. Check with your new employer's benefits administrator about the specific rules.

What happens to my HSA if I go on Medicare?

You can no longer contribute to an HSA once you enroll in Medicare, because Medicare disqualifies you from the high-deductible plan requirement. However, you keep the money already in the account and can use it to pay for Medicare premiums, copays, and other may be able to access expenses. The account does not close.

Can my employer take back money from my HRA if I do not use it?

Yes. Any unused HRA balance at the end of the plan year typically expires and goes back to your employer. Some plans allow a grace period (usually 2.5 months) to spend the money, or let you carry over a small amount to the next year, but this is optional. Check your plan documents to see what your employer allows.

Is an HSA the same as a Flexible Spending Account (FSA)?

No. An FSA is employer-owned like an HRA, and unused money expires at the end of the year. An HSA is employee-owned and the money rolls over forever. You also cannot have an FSA and an HSA in the same year. An FSA is simpler to set up but offers less flexibility and portability than an HSA.