| Plan Design | Flexible plan design determined by the employer. No requirements or limitations. | Legislated high deductible health plan. Requirements include minimum deductible and maximum out-of-pocket allowable amounts. Pharmacy benefit must be subject to the HDHP deductible. |
| Eligibility | All employees eligible under the plan. | Individuals/employees with an HDHP who are not enrolled in Medicare, not claimed as a dependent on another persons tax return, and who are not enrolled in a health plan that is not an HDHP. |
| Contributions | Employer only. Limits on contributions are set by the plan documents. There is no statutory limit. | Employee, employer or both up to the statutory maximum amount ($2,850 for singles, $5,650 for family in 2007. Indexed to CPI annually). Employers are not required to contribute to the HSA. |
| Qualified Medical Expenses | Determined by the plan document. Employers may limit the eligible expenses to those of the associated deductible plan, or include all IRC 213(d) eligible expenses. HRA funds may be used to pay for retiree health insurance premiums, Medicare premiums, long-term care insurance premiums and COBRA premiums. | All 213(d) medical expenses in addition to retiree health insurance premiums (excludes Medicare Supplemental), COBRA premiums, long-term care insurance premiums, health insurance premiums while receiving unemployment benefits. Employers may not limit eligible expenses. |
| Qualified Medical Expenses | Determined by the plan document. Employers may limit the eligible expenses to those of the associated deductible plan, or include all IRC 213(d) eligible expenses. HRA funds may be used to pay for retiree health insurance premiums, Medicare premiums, long-term care insurance premiums and COBRA premiums. | All 213(d) medical expenses in addition to retiree health insurance premiums (excludes Medicare Supplemental), COBRA premiums, long-term care insurance premiums, health insurance premiums while receiving unemployment benefits. Employers may not limit eligible expenses. |
| Fund Ownership | The HRA is notional and belongs to the employer. | HSAs belong to the individual/employee, regardless of employment status. |
| Portability | Continued access to HRA funds may be allowed by the employer when an employee leaves, but HRA funds are not portable and cannot be cashed out. Employers who switch from an HRA to an HSA can rollover employees balance into their HSA account (the notional account will become the employees real money in the process) | HSA funds belong to the individual and are portable regardless of employment status. |
| Claims substantiation | Generally administered by a third-party administrator to substantiate that claims submitted are for eligible expenses per the plan documents. | No claims substantiation required by employer, trustee or third-party administrator. The individual/employee accounts for eligible or non-eligible expenses on his/her personal tax return. |
| Compatibility with Health Flexible Spending Account (FSA) | Highly compatible as participants can fund the FSA for items uncovered by HRA. Employees may be required to pay out of the HRA or FSA first. | Limited by statute only to combine an HSA plan with a limited use FSA for vision, dental and preventive care services. |
| Funding | Generally funded out of general assets as claims are submitted for reimbursement. | Funding schedule determined by employer. Any employer contributions belong to the employee regardless of employment. The HSA always belongs to the individual, not the employer. |
| Taxability of Contributions | Employer contributions are deductible by employer as non-FICA compensation. Excluded from employees gross income. | Employer and employee/individual contributions are federal tax deductible. Some states allow tax-deductible contributions. |
| Taxability of Distributions | Only qualified medical expenses are allowed and are not taxable. | No tax on qualified medical expenses. Other distributions are taxed as income plus a 10% penalty tax excluding situations of death, disability or Medicare enrollment. |
| ERISA Requirements | General ERISA requirements do apply. | Generally, ERISA does not apply to the HSA, but still applies to the HDHP. |
| COBRA Requirements | COBRA does apply, however rules will vary depending on whether the HRA and medical plan are taken together as one plan or separate plans. | Generally COBRA does not apply to the HSA, but still applies to the HDHP. |
| Non- Discrimination & Comparability Rules | HRAs are always self-insured components of the plan, which means the plan cannot discriminate in favor of highly compensated individuals. | In general, employer contributions to HSAs must be comparable for all comparable employees (lower paid employees may receive larger employer contributions) the same amount or percentage of the annual deductible. Employers may make a matching contribution through a cafeteria plan. |
