HSA. FSA. HRA. HPA. LSA. What do all these even mean?

Key Takeaways: By aligning the right mix of Health Savings Accounts, Flexible Spending Accounts, and other targeted health benefits, HR professionals can help to optimize budgets while empowering employees to take control of their healthcare.

• Simplify compliance and choice: Knowing the distinct regulatory rules for each account helps ensure you meet compliance requirements while offering competitive, strategic options.
• Empower employees: Consumer-directed benefits give employees financial flexibility and confident control over their healthcare spending.
• Optimize costs: Strategic implementation of these accounts can lead to significant tax advantages for both the employer and the employee.

Navigating healthcare benefits can feel overwhelming, especially with so many acronyms. HSA, FSA, HRA, HPA – it’s easy to get lost in this sea of letters. And if it’s confusing for benefits leaders, imagine how tough it is for your employees and their families.

In short, understanding these consumer-directed benefit accounts is the first step to clarifying the employee experience and driving cost savings for your organization.

In this guide, we’ll break down these terms and clear up the different types of health accounts available.

What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged account designed to help individuals covered by high-deductible health plans pay for qualified medical expenses. It provides unique tax savings to pay for or get reimbursed for healthcare costs, and funds can also be saved for the future, including into retirement.

What you need to know:

• HSAs provide triple-tax savings¹—money goes in tax-free, grows tax-free, and can be spent on qualified medical expenses tax-free.
• Unused HSA funds roll over every year.
• HSA holders own their account. Their money stays with them, even if they change jobs or retire.
• HSA funds earn interest and can be invested for long-term growth.²

Who is eligible for an HSA?

HSA members must:

• Be covered by a high-deductible health plan (HDHP).
• Have no disqualifying health coverage, such as Medicare, military benefits, and healthcare FSAs.
• Not be claimed as a dependent on someone else’s tax return.
• Be the minimum age of 18.

What is a healthcare Flexible Spending Account (FSA)?

A healthcare FSA is an employer-sponsored account is an employer-sponsored benefit that allows employees to use tax-free money to pay for eligible medical, dental, and vision expenses.³ Unlike an HSA, an FSA comes with the caveat of use-it-or-lose-it by the end of the plan year.

In addition to an FSA, employers can also offer a Limited Purpose Flexible Spending Account (LPFSA) for dental and vision expenses and a Dependent Care Flexible Spending Account (DCFSA) to help employees pay for eligible daycare, preschool, and elder daycare.

There are a few considerations with these accounts:

• An LPFSA can be combined with an HSA.
• A healthcare FSA cannot be used alongside an HSA.
• Unlike a healthcare FSA, DCFSA funds only become available as contributions are made.

What you need to know:

• The entire FSA balance is available for use on the first day of the plan year.
• FSA funds must be spent each year or they are forfeited. They do not “roll over” to the next plan year like HSA funds do. That said, employers’ plan design may allow for a grace period or other provisions.
• The account is owned by the employer. If an employee leaves their job, retires, or does not spend their entire balance before the end of the plan year, funds are returned to the employer.

Who is eligible for an FSA?

Anyone whose employer offers an FSA is eligible. Employers may exclude certain employee categories, such as part-time, seasonal, and temporary. Employees using healthcare FSAs cannot open or contribute to an HSA unless the employer offers a limited purpose FSA.

What is a Health Reimbursement Arrangement (HRA)?

An HRA is an employer-sponsored plan that allows employees to be reimbursed for their eligible healthcare, dental, and vision expenses. With a typical HRA, the employer sets an annual fixed amount—such as $2,000—available for the employee’s eligible out-of-pocket expenses.

What you need to know:

• HRAs are fully funded by the employer.
• Employees with an HRA are reimbursed for eligible expenses.
• Employers determine the eligible expenses for their organization.⁴
• The account is owned by the employer. If an employee leaves their job, retires, or does not spend their entire balance before the end of the plan year, funds are returned to the employer.
• A Health Incentive Account (HIA) is a similar employer-sponsored account created to financially reward employees for completing health-related incentive activities.

Who is eligible for an HRA?

Anyone whose employer offers an HRA is eligible. Employers may exclude certain employees (part-time, seasonal, temporary, etc.).

What is a Lifestyle Spending Account (LSA)?

A Lifestyle Spending Account (LSA) is an employer-funded account focused on supporting overall employee wellbeing by funding a wide variety of categories and expenses. These can range from gym memberships to financial planning to adoption assistance. Employers can configure a Lifestyle Spending Account to suit their needs and they have flexibility to decide the eligible expenses, reimbursement methods and timelines, and employee eligibility.

What you need to know:

• Employers fund the LSA, often incentivizing healthy activities.
• An LSA can be used for a variety of wellness-related expenses, not limited to healthcare. It can even include financial wellness activities.
• The employer owns the account, with usage tied to employment.
• LSAs generally involve post-tax funds.

Who is eligible for an LSA?

Anyone whose employer offers an LSA is eligible. Employers may exclude certain employees (part-time, seasonal, temporary, etc.).

What is a Health Payment Account (HPA)?

An HPA is an employer-sponsored account offering employees an interest-free, no fee line of credit for healthcare expenses.⁵ HPAs enhance financial flexibility by giving employees immediate access to funds to pay for out-of-pocket eligible healthcare costs.

What you need to know:

• Eligibility and terms are set by the employer.
• Funds are available when needed, reducing care barriers.
• HPAs cover veterinary costs.⁶
• Repayment might also include HSAs and FSAs, depending on the employer’s plan.
• No health plan is required.
• The HPA works alongside any health plan and other health benefits, or no benefits at all.

Who is eligible for an HPA?

Employers can determine which employees are eligible for HPAs. HPA membership is tied to continued employment. If that employment ends, so does the employee’s continuing enrollment in an HPA as a benefit. But, if money is still owed to the HPA, it needs to be paid back, even if the employee is no longer employed by the sponsoring employer.

Applying your knowledge of consumer-directed benefit accounts

It’s important for benefits teams to know the difference between HSAs, FSAs, HRAs, LSAs, and HPAs, and specialty accounts like LPFSAs and DCFSAs. Each account type offers its own benefits and considerations, but they are all strategic ways to help employees save, spend, and invest for health.

HealthEquity offers a number of helpful articles and comparisons in our member-facing Content Library. We also offer an AI chat experience called HSAnswers,⁷ which will give you a handy peek at the questions and answers your employees are looking for when evaluating their benefits options.

Frequently Asked Questions

Q: Can an employee contribute to both a Health Savings Account (HSA) and a Flexible Spending Account (FSA)?

A: Generally, employees cannot contribute to a standard healthcare FSA and an HSA at the same time. However, they can pair an HSA with a Limited Purpose FSA (LPFSA), which is restricted to eligible dental and vision expenses.

Q: What happens to a Health Reimbursement Arrangement (HRA) if an employee leaves the company?

A: Because an HRA is entirely funded and owned by the employer, any unused funds are usually returned to the employer if the employee leaves the company or retires.

Q: Are funds provided through a Lifestyle Spending Account (LSA) taxable to the employee?

A: Yes, unlike HSAs and FSAs, Lifestyle Spending Accounts (LSAs) generally involve post-tax funds. This means the money employees receive or are reimbursed for through an LSA is considered taxable income.