A Health Savings Account (HSA) is a trust or custodial account used to accumulate funds on a tax preferred basis to pay for certain medical expenses. The HSA must be accompanied with a high deductible health plan that has an annual deductible of not less than $1,000 for self-only coverage, and $2,000 for family coverage, with a cap on out-of-pocket expenses (including the deductible) of $5,000 self and $10,000 family (with certain exceptions related to preventive care and out-of-network expenses).

Amounts distributed for medical expenses incurred by the account holder, spouse or dependant are excludable from income, except for amounts distributed to pay health insurance premiums. However, expenses for the following types of health insurance premiums are excludable from income:

Contributions may be made either by the employer or the employees, and may be made through a cafeteria plan. Subject to certain limits, employer contributions are excludable from gross income, and contributions by an eligible individual are deductible in computing adjusted gross income. Contributions are not subject to employment taxes. Amounts not used for medical expenses by the end of the year may be carried over to future years and are non-forfeitable.

Any individual (or spouse) who is covered by a high deductible health plan and no other non-high deductible plan, unless the other non-high deductible plan provides coverage for accidents, disability, dental care, vision care, long term care or other types of "permitted insurance." Individuals who are entitled to benefits under Medicare are not eligible to make contributions.
 

A Health Reimbursement Account (HRA) is an employer-sponsored benefit program under which employees may receive reimbursement for medical expenses as described below. A Health Reimbursement Account (HRA) may be offered in conjunction with a high-deductible or other type of health plan, but is not required.

Amounts may be distributed to reimburse an employee for all medical expenses incurred by the employee, their spouse or dependents, except for expenses for qualified long-term care services. (Note that premiums for long-term care insurance are reimbursable).

A Health Reimbursement Account (HRA) is generally not funded. Rather, reimbursements are paid from the employer’s general assets. Contributions must be solely employer paid, are excluded from income, and are not subject to employment taxes. There are no statutory limit to the amount of contributions that may be made; any limits are plan design.

Any employee who satisfies the eligibility criteria of their employer.

These monies are owned by the individual employee and may be carried over to future years, for payment to the employee, spouse or eligible dependents for the duration of their lives.