Health Savings Account (HSA)

Unlike the HRA, which is funded exclusively by the employer, the Health Savings Account (or HSA) can be funded by the employer, the employee or both. Employer contributions can be made in a lump sum at the beginning of the plan year, or made throughout the plan year. Employee contributions are made through a pre-tax payroll deduction.

HSA funds are deposited with a third-party trustee. Only funds actually in the account can be accessed for reimbursement.

In addition to covering out-of-pocket medical costs, an HSA allows employees to put aside pre-tax income, thus reducing their tax liability while also earning interest on their savings. And, unlike a Flexible Spending Account, any money not used remains in the portable account, and can be used for future health expenses. HSA balances belong to the employee when they retire or change jobs.