Health care costs are rising faster than wages, and many are stuck trying to decode a growing list of “alphabet soup” benefits: Think HRA (health reimbursement arrangement), HSA (health savings account), and FSA (flexible spending accounts)…just to start. For employees, understanding the nuances of these options can mean the difference between leaving money on the table and building a long‑term health savings cushion.
Let’s start with an employer-funded HRA and an individually owned HSA.
In 2026, employers are leaning even harder on these solutions to control costs and expand access to care. But the rules, limits, and trade-offs of these options are not always clear. Which is best if you want to keep your own costs as low as possible right now, for instance? Or if you’re trying to save aggressively for future health expenses? Or if you’re paying out of pocket for GLP-1s?
To help, we’ll break down the pros, cons, and key features of HRAs vs. HSAs, so you can make the right decision for your health care needs.
What is an HRA?
A health reimbursement arrangement (HRA) is an employer-funded account that reimburses employees for qualified medical expenses. Employers determine eligibility, funding levels, and reimbursement rules.
HRA Eligibility
Employers establish HRA eligibility rules, which can vary by plan type, such as Individual Coverage HRA (ICHRA) or Qualified Small Employer HRA (QSEHRA). No high-deductible health plan (HDHP) is required to open an HRA, however, employees must meet employer-specific criteria, often tied to group or individual health coverage.
HRA Ownership
Your employer owns and funds the HRA. That means funds remain employer-controlled and typically end upon job termination, though some plans allow limited access once you leave your job.
HRA Investment
HRAs do not permit investment options. Funds are used solely for reimbursements without growth potential.
HRA Rollover
HRA rollover options depend on your employer. Many plans forfeit unused funds annually, while others allow carryover. Excepted-benefit HRAs cap employer contributions at $2,200 in 2026.
HRA Tax Benefits
Employer contributions are tax-free to employees. And reimbursements for qualified expenses avoid federal income, FICA, and state taxes.
HRA Use Cases
HRAs suit employer-controlled benefits for routine expenses like copays or GLP-1 medications. HRAs are also commonly used in small businesses via QSEHRA or large firms via ICHRA for individual premiums.
HRA Contribution Limits
There are no universal contribution limits for HRAs; employers set these amounts. As general guidelines, QSEHRA maximums vary by employee size and age and excepted-benefit HRAs cap at $2,200. ICHRA has no cap but requires nondiscrimination.
HRA Qualified Expenses
HRA qualified expenses follow IRS Section 213(d), including prescribed GLP-1 medications, premiums (in some HRAs), doctor visits, and dental costs. Employers define reimbursable items.
HRA Pros and Cons
HRAs offer employers significant control over funding and design, making them a flexible tool to support employee healthcare expenses. However, this employer-driven approach brings trade-offs regarding portability and individual control, which are important to consider when evaluating the overall value of an HRA.
Considering this option for yourself? Here’s a closer look at the pros and cons of HRAs:
Pros:
Employer-funded with no employee cost.
Flexible design fits various business sizes.
Covers premiums in ICHRA/QSEHRA.
Tax-free reimbursements.
Cons:
Employer-owned; not portable.
Variable rollover based on plan.
Ends on job loss typically.
Eligibility employer-controlled.
What is an HSA?
A health savings account (HSA) serves as a personal savings account paired with an HDHP. It funds deductibles and qualified medical expenses with investment potential and triple tax benefits.
HSA Eligibility
HSA eligibility requires HDHP coverage with minimum deductibles of $1,700 for self-only or $3,400 for family, along with out-of-pocket maximums of $8,500 or $17,000. Medicare enrollment, dependent status, or non-HDHP coverage disqualifies participation.
HSA Ownership
Participants own the HSA individually. Funds remain portable across job changes and into retirement.
HSA Investment
HSA investment options become available after balances reach $500 to $1,000. These options include mutual funds, ETFs, and stocks, with tax-free growth on earnings for qualified use.
HSA Rollover
All HSA balances roll over indefinitely. No use-it-or-lose-it rule applies.
HSA Tax Benefits
HSAs offer three tax advantages: pre-tax contributions, tax-free growth, and tax-free qualified withdrawals. After age 65, non-qualified withdrawals incur income tax only. Qualified withdrawals include doctor visits, prescriptions like GLP-1s, and IRS-approved costs.
HSA Use Cases
HSAs support chronic care, such as ongoing GLP-1 treatments for diabetes or obesity management. Reimburse past expenses tax-free or invest excess funds for family deductibles or retirement health care.
HSA Contribution Limits
HSA 2026 limits are $4,400 for yourself and $8,750 for your family, plus $1,000 catch-up for age 55+. Employer contributions do not count toward limits.
HSA Qualified Expenses
Qualified HSA expenses match FSA definitions, including prescribed GLP-1 medications, therapies, and copays after meeting the deductible. Receipts support reimbursements at any time.
HSA Pros and Cons
HSAs empower individuals with ownership and investment opportunities while maximizing tax advantages over time. On the other hand, there are eligibility rules and possible penalties to watch out for, so it’s important to understand how HSAs work to get the most out of them for both short-term and long-term healthcare savings.
Here, we’ll break down the pros and cons of HSAs:
Pros:
Individual ownership and portability.
Tax-free investment growth.
Unlimited rollovers.
Higher defined limits.
Retirement flexibility post-65.
Cons:
HDHP deductibles upfront.
Pre-65 non-qualified penalty (20% + tax).
Contribution-based accumulation.
HDHP eligibility required.
HRA vs. HSA: A Comparison
Still weighing your options? Use this side-by-side chart to quickly compare HRAs and HSAs across key factors like contribution limits, eligibility, ownership, and tax benefits to help decide which account fits your health care and financial situation.
HRA | HSA | |
Contribution limit | Employer-set ($2,200 excepted-benefit) | Self: $4,400; family: $8,750 |
Eligibility | Employer-defined | Must have HDHP |
Ownership | Tied to employer | Individually owned |
Investment options | No | Yes, after minimum balance |
Rollover | Plan-dependent | Unlimited |
Tax benefits | Employer contribution tax-free | Triple tax advantage (contributions, growth, withdrawals) |
Portability | Typically no | Yes; for job changes and retirement |
Funding source | Employer only | Employer and employee |
HRA vs. HSA: Which Should You Choose?
Choosing between an HRA and HSA largely depends on your specific health plan, anticipated medical costs, and savings preferences.
For example, you might:
Choose an HSA if: You have a high-deductible health plan or want lower monthly premiums. It’s also a good option if you want full control of your account and portability for your healthcare dollars.
Choose an HRA if: Your employer offers funding without employee contributions. It works well for small businesses using QSEHRA or ICHRA setups.
How HRAs and HSAs Work With Other Benefits
HRAs and HSAs often work alongside other employer benefits like FSAs or dental and vision plans. For instance, some employers let you use limited-purpose FSAs with an HSA to cover dental and vision costs before you hit your deductible, without affecting your HSA contributions. Depending on the plan, HRAs might also cover premiums or other out-of-pocket expenses. Knowing how these accounts fit together can help you get the most tax benefits and better manage your healthcare costs.
Finding the Right Fit for Your Health Care Needs
HRAs and HSAs both help manage out-of-pocket healthcare costs heading into 2026, but it can be tough to decipher which solution is best for your needs. While HSAs work well for long-term or recurring needs, HRAs are better for employer-funded, short-term reimbursements.
Take a look at your coverage during open enrollment to choose—and maybe even combine—accounts for the best tax benefits and coverage.
HRA vs. HSA FAQs
Can I use HRAs or HSAs for GLP-1 medications?
Yes. Both HRAs (if employer plan allows) and HSAs cover prescribed GLP-1 medications as qualified medical expenses under IRS rules. This includes copays and full medication costs when prescribed for diabetes or obesity.
Can I have both an HRA and HSA at the same time?
Generally, having both an HRA and HSA simultaneously is restricted, but some limited-purpose HRAs work alongside HSAs covering dental and vision expenses. Make sure to confirm plan coordination with your employer.
What happens to my HRA or HSA funds if I change jobs?
HSA funds are individually owned and portable, remaining with you through job changes. HRA funds, on the other hand, are employer-owned and typically unavailable after leaving, though some plans allow limited use post-employment.
Are contributions to HRAs and HSAs tax-deductible?
Only HSAs allow tax-deductible contributions from employees. HRAs are funded entirely by employers with contributions excluded from employee income.
How do 2026 contribution limits compare between HRAs and HSAs?
HRA contribution limits are set by employers and vary widely; for excepted-benefit HRAs, the cap is $2,200 in 2026. Meanwhile HSAs have IRS-defined limits of $4,400 for self and $8,750 for family coverage, plus $1,000 catch-up for those 55 or older.
