HRA vs. HSA vs. FSA: What is a Qualifying Expense?
As Health Savings Accounts (HSAs) are growing in popularity, employers having increasing questions on the difference between Health Reimbursement Accounts (HRAs), FLEX Spending Accounts (FSAs) and HSAs. While there are overlapping regulations in each of these benefits, there are also important distinguishing factors.
This blog will focus on the question: “For an HRA vs. HSA vs. FSA, must a qualified expense be incurred during the same plan year that the contribution is made?” Let’s focus on how each of these benefits responds.
Health Savings Account (HSA)
No. However, reimbursements cannot be made for expenses that were incurred prior to the establishment of the HSA.
For example, if Shannon had incurred a medical claim for a hospital visit in December, and opened her HSA in the following month, she would not be able to pay with pre-tax contributions from her new HSA for the claim incurred prior to her opening her HSA account.
Health Reimbursement Account (HRA)
No. However, like the HSA, reimbursements cannot be made for expenses that were incurred prior to the individual’s effective date of the HRA plan enrollment.
Following the same example above, if Shannon has a claim for a hospital visit and December, and the effective date of the HRA is January 1, she will not be able to pay that claim out of her HRA.
Flexible Spending Account (FSA)
If the plan does not have an “extended grace period” provision, the expenses must be incurred during the same plan year as the contribution in order to be eligible for reimbursement.
If the plan does have an “extended grace period” provision, the expenses must be incurred by the end of the grace period in order to be eligible for reimbursement.
Of note, an “extended grace period” can be as much as 75 days after the end of the plan/contribution year. For example, if the plan/contribution year is January 1 through December 31, the extended grace period can run through March 16 (March 15 in a leap year). Expenses incurred during the extended grace period can be reimbursed from any remaining balance in the prior plan year’s account.
If Shannon had not already been enrolled in her employers FSA, had her claim in December, and enrolled in the plan in January, she would not be able to pay for the claim out of her new FSA.
If Shannon is enrolled in the employer’s FSA, she incurred a claim in January of the next plan year, and the plan did not have a provision for an extended grace period, she would not be able to use contributions from her prior year’s account to pay for the claim.
In the same scenario, if Shannon’s FSA did have an extended grace period provision, she would be able to use contributions from her prior year’s account to pay for the claim incurred in January of the new plan year.