A Guide to Understanding and Using Your HSA, HRA, or FSA

HSA, HRA, FSA, CIA, MIA... It seems there's an acronym for everything these days. So when it comes to healthcare, it should come as no surprise that there are acronyms aplenty. And when dealing with insurance, health savings accounts, and other types of health benefits, the terminology can be difficult to navigate. So to help, we're going to dive into some of the details.

Why do we care? Because some health savings agreements can help you pay for InsideTracker plans! Here's the nitty gritty of differentiating between these three major types of accounts, and how to use them.

Types of accounts

Health Savings Account (HSA)

An HSA works much like your typical savings account—you add money to it as you please. Some people choose to have a portion of each paycheck put directly in their HSA, and some employers will also match all or part of those contributions. The benefit of keeping money in an HSA rather than a normal savings account is that the money you add (and eventually use) is tax-free. 

An HSA works in conjunction with your high-deductible health insurance (translation: your deductible must be a minimum of $1,300 for individuals, or $2,600 for families). Therefore, your HSA dollars can only be used to help pay your health insurance deductible or qualified medical expenses (keep reading, we'll define that term in the next section).

Similar to how some savings accounts have withdrawal limits, eligible withdrawals from an HSA are also limited. Be wary: any funds you withdraw for non-qualified medical expenses will be taxed at your income-tax rate, plus 20% if you’re under 65. So do yourself a favor and double-check that a purchase qualifies for HSA dollars before spending the money.

Often times, your HSA account will come with a debit card that you can use to pay qualified expenses directly. But if you put medical expenses on your regular credit card, you can still reimburse yourself through your HSA. Simply save your receipts, turn them in through the proper channels (determined by your provider), and receive a refund!

Key takeaways about an HSA:

• The money you stow away in an HSA is tax-free
• To qualify for an HSA, you must have a high-deductible insurance plan
• Your HSA dollars help to offset your annual deductible or qualified medical costs
• Spending HSA money on non-approved expenses is costly, so they should only be used on qualified costs
• Even purchases made on a regular credit card can be HSA-reimbursed



Health Reimbursement Arrangement (HRA)

An HRA is an IRS-approved, tax-advantaged health benefit plan. An HRA alone is not health insurance—it works in conjunction with your insurance plan to offset the costs of medical expenses.

Unlike an HSA, an HRA is an agreement you have with your employer. Often times, this means your employer has agreed to contribute a determined amount of money (ex. $1,000) to your HRA account each year. This makes an HRA an excellent way for employers to offer health benefits and pay for a wide range of medical expenses not covered by insurance. Plus, even though it's from your employer, HRA dollars aren't considered income, so they aren't taxed going into your account. HRA purchases are also tax-deductible, making this money fully tax-free.

But be aware – your ability to use this money also depends on the qualifications of your expenses, so make sure you're aware of the details before spending those dollars.

Key takeaways about an HRA:

• HRA accounts are benefits some employers give their employees to promote their wellbeing
• As an employee, you don't add money to your HRA account
• Like an HSA, HRA money is tax-free but can only be used for qualified expenses
• Your employer will decide whether this money can roll over from year to year

Flexible Spending Account (FSA)

Also known as a flexible spending arrangement, an FSA is an account you put money into for use on certain out-of-pocket health care costs. These costs are often things you're already paying for, like copays from doctor visits and prescriptions.

FSAs tend to be a part of your benefits package from your employer rather than your insurance company. Much like an HSA, you can contribute to your FSA every pay period, and the money you contribute is pre-tax, so it isn't taxed before going into your account like normal income dollars are. 

Unlike HSAs and HRAs in which funds may roll-over year to year, FSAs follow the "use-it-or-lose-it" rule—at the end of the year, any remaining dollars in your FSA account effectively disappear, so you want to be sure to use up the funds by the end of the year! 

Key takeaways about an FSA:

• Like an HSA, you put money into your account every pay period
• Like the other account types, this money is not taxed
• FSA money can be used to cover expenses not otherwise covered by insurance
• FSA money does not rollover from year to year

So what's a qualified expense?

OK—finally! We borrowed the answer from this question from the IRS because, if we're being honest, that's who's best suited for explaining what qualifies and what doesn't. The IRS defines a qualified expense as one whose primary purpose is "to alleviate or prevent a physical or mental disability or illness."[1] You can read the entirety of their definitions in this document.[1]  We've also copied excerpts to the "Fine Print" section of this post (below).

In some cases, your healthcare provider can also supply you with a list of categories. And when in doubt, ask! Of course, you should always keep in mind that the expense should be in the medical, physical, or mental health (and sometimes dental or vision) families. 

What's the good news here? Well in our opinion, it's that many agreement providers authorize InsideTracker tests as qualified medical expenses!

How can I use one of these accounts to purchase an InsideTracker plan?

We'll start with a brief disclaimer: we know that using these accounts is not always smooth sailing. So, with this in mind, should you have any questions or issues with the steps below, please know that we're here to help!

Option 1 - Use your HSA or FSA funds to purchase through Truemed

Truemed is a tool that makes paying with your HSA or FSA funds easy.

Step 1: Select your plan at our online store.

Step 2: Choose the Truemed payment method at checkout (note: you must "checkout as guest"). You will be redirected to Truemed to complete your purchase.

Step 3: Pay with your HSA/FSA card.

Option 2 - Download your itemized receipt 

Step 1: Verify that your agreement provider covers InsideTracker plans.

Step 2: Purchase the InsideTracker plan(s) of your choice at our online store.

Step 3: Download your itemized receipt through your InsideTracker profile or via the link at the bottom of your order confirmation email.

Step 4: Save your receipt and either upload it to your HSA account or submit it through the proper channels (determined by your employer or insurance company) to receive your reimbursement!

You should always contact your healthcare provider before making any decisions regarding HSAs, HRAs, or FSAs, as some details are specific to certain plans and providers.

Still have questions? Contact us and we'll help get you started on your journey of personalized health!

Fine Print1

"Medical care" expenses as defined by IRS Code, Section 213(d) include amounts paid for the diagnosis, treatment, or prevention of disease, and for treatments affecting any part or function of the body. The expenses must be to alleviate or prevent a physical defect or illness. Expenses for solely cosmetic reasons generally are not expenses for medical care. Examples include facelifts, hair transplants, and hair removal (electrolysis). Also, expenses that are merely beneficial to one's general health (for example, vacations) are not expenses for medical care.

Questions regarding reimbursable health care expenses should be referred to a tax consultant.

Please note that the list is subject to change based on regulations, revenue rulings and case law. The list is intended only as a general guideline for covered expenses. All items on the list may be subject to further restriction. An employer may limit which expenses are allowable under their FSA or HRA plan offering.

References

[1] United States, Congress, IRS. “Medical and Dental Expenses (Including the Health Coverage Tax Credit).” Publication 502, Cat. No. 15002Q. IRS, 2017.