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What is a High Deductible Health Plan (HDHP)?

A high deductible health plan (HDHP) is a health plan with lower premiums and higher deductibles than a traditional medical plan. Preventive care benefits are not subject to the deductible, in accordance with federal law. In order to contribute to a Health Savings Account, an employee must be enrolled in a HDHP.

What is a Health Savings Account (HSA)?

Health Savings Accounts (HSAs) were created in 2003 so that individuals covered by HDHPs could receive tax-preferred treatment of money saved for medical and other qualified health care expenses. The employer and employee can contribute monies to the HSA on a pre-tax basis up to the limits set by the IRS. Those monies then are used during the course of the year to cover the deductible and out-of-pocket expenses of the High Deductible Medical Plan. If monies are not used from the account, they roll forward into future years with no limit on accumulation.

What is a Health Reimbursement Arrangement (HRA)?

Health Reimbursement Arrangements (HRA) is an IRS sanctioned health benefit plan, which reimburses employees (tax free) for out-of-pocket medical expenses. HRA’s are funded solely by the employer. The employer sets the parameters for the HRA, and typically unused dollars remain with the employer. There is no minimum or maximum contribution limit on the employer’s contributions to a HRA. The HRA is not required to be tied to a HDHP, however the employee must be enrolled on a group medical plan.