A health savings account (HSA) is a tax-free account that can be used to pay for medical expenses. It’s very similar to an IRA that’s used only for health care, allowing employees to accumulate significant funds for future medical expenses. The funds can also be used at any time without a tax penalty as long as they are spent on health care for employees and their families.

HSAs offer payroll tax relief and are a great way for employers to provide attractive benefits while reducing the burden of benefit costs on their businesses. Employers will notice immediate relief simply from the implementation of a higher deductible higher plan.

A health reimbursement arrangement (HRA) is a program that consists of employer-funded dollars that are used to cover a plan member’s out-of-pocket medical plan expenses, such as deductibles and coinsurance. It’s used for co-pays, pharmacy co-pays or noncovered medical expenses.

Unlike a flexible spending account (FSA), any unused HRA dollars can be carried forward from year-to-year. The dollars carried forward can be capped according to employer specifications.

The carry-forward feature of the HRA encourages conservative medical purchases and motivates members to better understand how they spend their medical benefit dollars.

Employers have the option of keeping current deductibles in front of the HRA and can determine the dollar amounts for deductibles and HRA contributions.

Recommended coverage for prescription drugs includes a three-tier coinsurance feature, motivating efficient purchase of pharmaceuticals through a pharmacy benefits manager. By doing so, plan members do not have to worry about prescription drugs being subject to the major medical deductible, which might otherwise discourage them from filling prescriptions.

In addition, an FSA program can be used by members to fund deductible costs not covered by the HRA.