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

Navigating healthcare benefits can feel overwhelming, especially with all the acronyms like HSA, FSA, HRA, HPA, and so many more. It’s easy to get lost in this sea of letters, especially if you’re new to consumer-directed benefits or unfamiliar with newer products. Don’t worry—we’ll go over each product so it’s easy to understand.

To really get the most out of these consumer-directed benefits for you and your employees or clients, it’s important to know how these accounts work and what they offer. In this guide, we’ll break down these terms and clear up the different types of health accounts available.

Decoding health account acronyms for better benefit choices

Let’s simplify this together. Keep reading for a summary of each benefit account.

What is a Health Savings Account (HSA)?

An HSA provides unique tax savings to pay for or get reimbursed for qualified medical expenses. Funds can also be saved for the future, including for 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.²

Who is eligible for an HSA?

Accountholders must:

• Be covered by a high-deductible health plan (HDHP).

• Have no other health coverage, such as Medicare, military benefits, and healthcare FSAs.

• Not be claimed as a dependent on someone else’s tax return.

What is a healthcare Flexible Spending Account (FSA)?

A healthcare FSA is an employer-sponsored account that allows employees to use tax-free money to pay for eligible medical, dental, and vision expenses. 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. First, an LPFSA is compatible with an HSA while an FSA is not. And be aware that 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.

• Healthcare FSA funds must be spent each year or they are forfeited. That said, employers may choose to allow a grace period or a carryover.

• The account is owned 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. Employers may exclude certain employee categories, such as part-time, seasonal, and temporary. Employees using healthcare FSAs cannot open or contribute to an HSA.

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.

• 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 HRA?

• Anyone whose employer offers an HRA.

• Employers may exclude certain employees (part-time, seasonal, temporary, etc.).

What is a Health Incentive Account (HIA)?

An HIA is an employer-sponsored account created to financially reward employees for completing incentive activities. The pre-tax funds are variable based upon incentives earned by the employee. For example, with an HIA, an employer can offer an employee $250 for completing an annual physical exam—when complete the funds are deposited into the employee’s HRA.

What you need to know:

• Only employers contribute pre-tax funds to an HIA.

• Contributions are not deducted from an employee’s paycheck.

• Incentive contributions are usually deposited directly into an employer-funded HRA.

• The account is owned by the employer. If an employee leaves their job, the incentive funds deposited in their HRA are usually returned to the employer.

Who is eligible for an HIA?

• Anyone whose employer offers an HIA.

• Employers may exclude certain employee categories, such as part-time, seasonal, and temporary.

What is a Lifestyle Spending Account (LSA)?

An LSA is an employer-sponsored account and focuses on supporting overall wellbeing to fund a wide variety of categories and expenses—from gym and health club dues to financial planning and adoption assistance. Employers can configure a LSA to suit their needs and have flexibility on deciding the eligible expenses, reimbursement methods and timelines, and employee eligibility.

What you need to know:

• Employers fund the account, often incentivizing healthy activities.

• An LSA can be used for a variety of wellness-related expenses, not limited to healthcare.

• The employer owns the account, with usage tied to employment.

• LSAs generally involve post-tax funds.

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, enhancing financial flexibility for employees.³ Employees get immediate access to funds to pay for out-of-pocket eligible healthcare costs.⁴

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.

• 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.

Applying your knowledge of consumer-directed benefit accounts

Now you know the difference between HSAs, FSAs, HRAs, HIAs, LSAs, and HPAs. Plus, you even know about specialty accounts, such as LPFSAs and DCFSAs. All of these health accounts provide benefits to employees and can be a great way to help them save money and pay for their healthcare.

From here, consider browsing our employee-facing Content Library for helpful articles on everything from deciding between an HSA or FSA to understanding rules for HSAs and Medicare. Still have more questions about account types? Try HSAnswers, an AI chat experience to learn about HealthEquity benefits.