The Role of FSA, HSA, and HRA’s and HDHP

Wednesday, December 01, 2010

Since in a HDHP the employee-consumer will be responsible for a minimum of $1,200 to $2,400 in out-of-pocket expenses, Flexible Spending Arrangements, Health Savings Accounts, and Health Reimbursement Arrangements provide several means by which HDHP expenses may be pre-funded. Each of these three methods has its own advantages and disadvantages, which is one reason HDHP’s require significant employee-consumer education around their permitted uses. FSA’s (IRS Code section 125) have been around for a number of years and is most likely familiar to many. Both HSA and HRA’s have come on the scene more recently as HDHP have become more popular. All three are highly regulated by the Internal Revenue Service.

The education of employee-consumers cannot be understated especially when it comes to the use of funding accounts such as Flexible Spending Arrangements, Health Savings Accounts, and Health Reimbursement Arrangements. Whether funded by the employer, jointly by both employer and employer, or solely funded by the employee, knowledge of the working of these account is vital to employee-consumer. All three of these accounts are helpful in assisting the employee-consumer understands the full cost of health, from which most employee-consumer have been shielded for decades.

In the same manner that Defined Contribution (DC) retirement plans have helped millions of workers understand that either they are solely or to a significant degree, responsible for their retirement, FSA, HSA, and HRA play the same role. You may well consider that in the early days of DC plans employee had little knowledge of saving and planning for retirement, investing, mutual funds, financial terminology, and matching amounts. Since the 1980,’s most Americans have had or currently have some type of DC plan and consider it the norm. In 10 to 20 years, most American will have had a FSA, HSA, and HRA associated with a HDHP and consider that a norm as well.

Therefore, we have come full circle. We have looked at HDHP, savings accounts and consumer education and tied it all together. Or maybe not? Organizations have move through several paradigm shift in health care products from first dollar indemnify, to HMO’s, to PPOs and POS, and finally to HDHP’s. Will HDHP be the end of the product development line for health care no? Somewhere, someone is conceiving the next product. What will it look like? Maybe it will look some combination of the products that are already out there. Maybe it will be a hybrid of a PPO/HDHP/HMO.