About Consumer-Driven Health Plans
Consumer-Driven Health Plans (CDHPs) give employers the flexibility to combine a qualifying medical plan with either a health savings account (HSA) or health reimbursement account (HRA).
Cigna's Consumer-Driven Health Plans are designed to deliver savings for clients, without shifting costs to customers. Employers can choose to offer one or both of the Cigna CDHP plans. The health savings account (HSA) gives employees ownership of a tax-exempt savings account they can use to contribute pre-tax dollars to pay for covered health care costs.1The health reimbursement account (HRA) combines a health plan with an employer-funded HRA to help employees pay for covered health care costs.
Typical Plan Structure
With both options, Cigna delivers a one-stop employer and employee experience by integrating administration and any interactions with HSA bank vendors, as well as service and wellness programs.
HRA Plan
- Employer-ownedaccount. The employer chooses limits on remaining HRA dollars that roll over to future plan years.
- Most health plansare eligible. Employers choose the underlying medical plan.
- Contributionsare made by the employer. Employers choose how much to contribute.
- Automatic claim forwardingoption to pay health care providers directly from the HRA.
HSA Plan
- Employee-ownedaccount.
- Qualified high-deductible plansare eligible.Premiumsfor these plans are typically lower than traditional medical plans.
- Contributionscan be made by the employer and the employee, up to the IRS limit each year.
- Preventive prescription drugscan be covered before employees meet their deductible.
- Optional Limited Purpose Flexible Spending Account (FSA)for vision and dental expenses. This gives your employees the freedom to enroll in an HSA while saving additional pre-tax dollars in a FSA to help pay for eligible vision and dental expenses.2
Do you know the difference between a Health Reimbursement Arrangement (HRA) and a Health Savings Account (HSA)? Let’s take a closer look at their similarities and differences, particularly regarding account ownership, tax benefits, and insurance requirements.
HRA vs HSA Similarities
The idea behind HRAs and HSAs is that they help make healthcare more affordable for workers and their families. Each type of account has different advantages, and there are also many similarities.
Account holders and participants can use HRA or HSA funds to pay for qualified health expenses. Both accounts are part of consumer-directed healthcare, which empowers individuals to choose how and when to spend healthcare dollars. Also, both accounts can be part of an employer-sponsored benefit plan.
HRA vs HSA Differences
Account types and insurance requirements
There is only one type of Health Savings Account (HSA). To open and contribute to an HSA, account owners must be enrolled in an HSA-eligible (HDHP) health plan.
In comparison, there are several types of Health Reimbursement Arrangement (HRA) accounts:
- Group HRA – A traditional HRA is offered by employers paired with a group health plan and covers IRS-approved out-of-pocket expenses as determined by the employer
- Individual Coverage HRA – Employers of any size can offer ICHRAs to cover individual health insurance premiums (non-group) and, in some cases, employer-approved eligible expenses
- Excepted Benefit HRA – EBHRAs are offered by employers to help cover the dental, vision, short-term disability, etc.
- Qualified Small Employer HRA – Offered by employers with fewer than 50 full-time employees to cover non-group health insurance premiums and employer-approved expenses
Account ownership
An HRA is employer-owned, whereas an HSA is employee-owned. So, an HRA remains with the employer when an employee leaves the company, and the funds return to the employer.
With an HSA, the employee owns the account for life, regardless of employment status. The account holder can continue to use the available balance and, if enrolled in an HSA-eligible plan, keep making new contributions. Account holders may also invest their HSA funds once their account balance reaches a minimum threshold.
Funding and taxes
Another noteworthy difference is funding. The money in an HRA comes solely from the employer, who also determines the annual limit. Therefore, the employer sets the rules for which expenses are eligible for reimbursement, such as deductibles, copays, coinsurance, and possibly other services like dental and vision.
Anyone can fund an HSA, but contributions generally come from the employee, the employer, or both. The IRS sets the guidelines for HSA-qualified expenses and the annual limits for HSA contributions.
There are also tax advantage differences. Since an HRA is employer-funded, only the employer gets a tax reduction. However, approved expense reimbursements are not taxable to the employee.
With an HSA, contributions are tax-free, and the account holder earns tax-free interest on the account balance and tax-free investment gains. The employer also gets a tax benefit for any contributions it makes.
The table below provides a side-by-side comparison of the differences between an HRA and HSA for account holders:
HRA vs HSA: Differences for Account Holders
| Item | Health Reimbursement Arrangement (HRA) | Health Savings Account (HSA) |
| Funding | Employer-funded only | Funded by account holder and/or employer |
| Tax-advantaged contributions | Employer only | Account holder and employer |
| Portability | No; stays with employer | Yes; stays with account holder |
| Integration with other tax-advantaged accounts | Can integrated with FSA | None |
| Coverage requirement | Group plan or approved individual policy, depending on HRA plan type | HSA-eligible (HDHP) required |
| Interest earned | None | Yes, tax-free |
| Ability to invest | No | Yes, once account reaches a certain balance |
| Rollover/account accumulation | Dependent on plan set up | Yes, with no limit |
| Funds available for use in retirement | Dependent on plan set up | Yes |
Which is better for employers?
- HRAs offer greater control over contributions and permitted expenses.
- HRAs can offer cost reductions for both the employer and the employee, so it’s a win-win.
- Employer contributions to HRA accounts are 100% tax-deductible.
- HRAs require employees to pay for out-of-pocket expenses and then request reimbursement, reducing fraud potential.
While HSAs are a great way to help eligible employees, they don’t provide employers as much control. And there is an added administrative record-keeping need with an HRA.
Which is better for employees?
- Both HSAs and HRAs can help employees to lower their healthcare costs.
- With HRAs, employees are not subject to taxes on their income, but they don’t get any tax savings. But, HSAs offer triple tax savings.
- While some accounts have a “use it or lose it” provision, HRA funds can be rolled over to the next year if permitted. HSAs always go with you; there is no “use it or lose it” provision.
- If you’re looking for a lifelong account, HSAs are your answer.
- If you like your HRA but leave your job, you may never find another one that exactly meets your needs.
Knowing the difference between an HRA and an HSA is important, especially as they are key to consumer-driven healthcare. Decide which one is right for you.
DataPath Summit features flexible HRA plan design and all-in-one HSA administration.
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