Health Care

Table: Side-by-Side Comparison of MSAs, FSAs, and HRAs

Published January 1, 2003

Side-By-Side Comparison Medical Savings Accounts (MSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs)
	MSA	FSA	HRA
Who “owns” it?	Individual/Employee.	Individual/Employee.	Employer.
Who funds it?	Employer or employee (but not both), or self-employed individual.	Typically funded by employee.	Employer only (self-employed precluded).
How is it funded?	Money is deposited directly into the account.	A set amount of pretax wages designated by the employee is deposited directly into an account.	Employer reimburses employee when presented with a valid receipt.
Is it a personal account?	Yes.	Yes.	It is an “Arrangement,” not an “Account.”
What type of corresponding health plan is allowed?	Only high deductible.	Any type of health plan arrangement.	Any type of health plan arrangement.
Does interest accrue?	Interest can be accrued tax free in qualified MSAs.	Interest not accrued.	Interest not accrued or addressed in IRS regulations.
Is it portable?	Rollover is allowed — individual owns MSA, takes it when leaving employment.	Unused funds must be spent by year’s end (or by termination of employment before year’s end), otherwise individual loses money.	HRAs cannot be rolled over to a new employer. An employer is under no obligation to continue the arrangement after employee departure, however an employer may chose to continue reimbursing a former employee’s expenses from the HRA.
Can funds be used for non-medical expenses?	Funds used for non-medical expenses are taxed as income and incur a 15% penalty. After age 65 there is no penalty.	No, health portion of FSA only used for expenses defined under §213(d) of IRC.	No, only expenses defined under §213(d) of IRC.
What is the tax treatment?	Qualified MSAs are tax free as long as funds are spent on medical care defined under §213(d).	Contributions to FSA are tax free and so reduce annual taxable income.	Reimbursements to employee are tax free as long as they are used on qualified health care purchases.