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How to understand the alphabet soup of health care savings accounts.

How to understand the alphabet soup of health care savings accounts

What is the difference between an HSA, FSA, and HRA?

It’s like alphabet soup.

These three acronyms are confusing but important. Each is a kind of savings vehicle that holds tax-exempt dollars you can use for your medical expenses. All of them help you stretch your health care dollar. But they differ in important ways.

Okay, so what do the acronyms mean?

  • HSA = health savings account
  • FSA = flexible spending account
  • HRA = health reimbursement arrangement

And how do they differ? Let’s look at each in turn.

What is a health savings account?

An HSA is a special savings account used for out-of-pocket medical expenses like drugs, doctor’s appointments, and medical procedures and devices. It’s tax free, and you or your employer or both can put tax-exempt money into it, up to a cap.

Importantly, you own it. The money in it is yours — forever.

You can take it with you when you leave your job or retire. You can also invest it and build a nest egg for the future.

What about a health reimbursement account?

An HRA can be used only for certain medical expenses your employer wants to help you pay for — usually out-of-pocket expenses associated with your health insurance, like co-pays and deductibles.

So, what is an FSA?

An FSA is a tax-free workplace health account you may use for any qualified medical expense.

It’s a wonderful tool but comes with a big downside.

Here’s how it works:

  • Your employer puts tax-exempt money into your FSA
  • You spend this money on qualified medical expenses as needed
  • At the end of the year, any unspent money returns to your employer — “use it or lose it.”

The bottom line for understanding the alphabet soup of health care accounts

What’s the biggest difference between these three kinds of accounts? Who owns it.

  • With an HSA, you do. You own the money in the account. It’s yours for life.
  • With an FSA or HRA, your employer owns it. You can’t take the money with you when you leave, and your employer can take it back at any time. And you can’t invest it.

Now that you understand these confusing acronyms — why not try one today?

Visit to learn more about HSAs and other solutions for making health care more affordable.