Types of PFAs

Health savings account (HSA)

A high-deductible health plan gives you the option of opening a HSA. A HSA allows you to save tax-free money and pay for current and future healthcare expenses approved by the Internal Revenue Service (IRS), such as your deductible and coinsurance. There is no use-it-or-lose-it rule; funds are yours to use on medical expenses as long as your HSA remains open. You can also save and invest your money and let it grow tax free to use in the future.

More about health savings accounts

Flexible spending account (FSA)

A FSA is a special account offered by your employer. You decide how much money to contribute at the beginning of each plan year. Then use the account to pay for care expenses throughout the year.

Benefits of a FSA include the following:

Funds deposited or used on qualified healthcare expenses are tax free.
Contributions are automatically withdrawn from your paychecks.

Your employer provides and owns your FSA. Only you and your employer can contribute funds, up to the maximum amount allowed by the IRS. Unlike HSAs, FSAs are use-it-or-lose-it accounts, meaning your employer may keep any money not used at the end of your plan year.

Types of FSAs

Dependent care FSA

Employers may also offer a dependent care FSA (DCFSA). Funds in this account pay for the costs of care for dependents such as children under 13 or older adults. This account can be used for expenses such as state-licensed daycare, preschool, and state-licensed elder care (not including medical care).

Healthcare FSA

A healthcare FSA covers medical, dental, and vision expenses that you would otherwise pay for out of pocket. This includes deductibles, coinsurance, hospital charges, lab fees, over-the-counter (OTC) items, and prescription drugs.

Limited purpose FSA

A limited purpose FSA (LPFSA) is specifically for dental and vision expenses. It's often used in conjunction with a health savings account (HSA), as it allows individuals to use both accounts without overlapping benefits.

Health reimbursement arrangement (HRA)

A HRA is an employer-funded account. You can use the funds in your HRA account to help pay for your healthcare costs on a tax-free basis. Only your employer can contribute to your HRA. You use these funds to pay for any HRA-eligible expenses incurred by you or your dependents. Refer to your employer’s benefit booklet for full details.

Benefits of an HRA include the following:

Funds in your account help pay for eligible out-of-pocket healthcare costs.
Contributions from your employer are tax free.

Types of HRAs

The type of HRA your employer chooses may determine whether you or your account pay initial eligible expenses. HRA types can include the following:

Member pays first: The member pays for a set amount of expenses before HRA funds are available.
HRA pays first: HRA funds are available for eligible expenses immediately.
Split first dollar coverage: Eligible healthcare expenses are split between you and your HRA.

Paying for healthcare expenses

There are two ways to use your FSA or HRA to pay for eligible healthcare expenses:

If your group’s health plan issued payment cards to members, you can use your card for eligible expenses.
Pay with your own money and submit a claim with receipts online for reimbursement.

Medical expense account comparison

For a quick summary of what's included and excluded in HSAs, HRAs, and FSAs, view the chart below:

= Included = Excluded

Medical expense account comparison	HSA	HRA	FSA
You own the account	Included	Excluded	Excluded
Your employer owns the account	Excluded	Included	Included
You must have a high-deductible plan	Included	Excluded	Excluded
Only your employer can put money in	Excluded	Included	Excluded
You and your employer can put money in	Included	Excluded	Included
You can invest the money in the account	Included	Excluded	Excluded
Account must be reported for taxes	Included	Excluded	Excluded
The money stays in your account until used	Included	N/A*	N/A*

*Your employer decides whether or not your HRA or FSA funds will roll over annually.