CRS Provides Comparison of Tax-Advantaged Accounts for Health Care Expenses

On May 3, 2021, the Congressional Research Service (CRS) released “A Comparison of Tax-Advantaged Accounts for Health Care Expenses.” The report summarizes key aspects of and distinctions between health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs).

FSAs are employer-sponsored benefits funded primarily by employees through salary reduction agreements under a cafeteria plan. HRAs are established and funded solely by employers. HSAs are individually owned accounts that can be funded by employees and employers.

The CRS report explains that all three account types permit contributions within applicable limits to be excluded from an employee’s gross income and from payroll taxes. Distributions are also tax-free if used to pay or reimburse qualified medical expenses.

In addition to the similarities, the summary explains the numerous differences between FSAs, HRAs and HSAs. Specifically, the report compares the eligibility requirements, the qualifying health insurance associated with the accounts, contribution limits, the types of medical care considered “qualified medical expenses,” the ability to carry over funds each year or invest account balances, and the availability of funds upon termination of employment.

The FSA section outlines the standard regulatory requirements governing these accounts, as well as applicable COVID-19 temporary relief measures. For example, the summary describes the optional provisions under the Consolidated Appropriations Act of 2021, which allow for greater flexibility with respect to employee contribution elections and access to unused FSA account balances.

The HRA section reviews the five categories of HRAs, which are traditional group health plan HRAs, individual coverage HRAs, qualified small employer HRAs, excepted benefit HRAs and retiree only HRAs. Comparisons are made between the various HRA categories, in addition to the other types of accounts.

The HSA summary highlights the additional advantages of these employee-owned accounts, including the ability to invest balances and benefit from tax exempt earnings. The portable nature of HSAs is also emphasized. Furthermore, the HSA section explains how the standard eligibility requirements have been temporarily modified by the CARES Act, to allow for broader coverage of telehealth services during the COVID-19 pandemic.

The report includes a table that summarizes the general rules for each type of account. Recent statistical data regarding availability and participation levels by account type is also provided.

Employers who offer (or are considering offering) FSAs, HRAs or HSAs may want to review the complete report for further information.

A Comparison of Tax-Advantaged Accounts for Health Care Expenses »