HRA Savings Example
An HRA Can Work Together with an FSA or HSA
Since the IRS permits only employers to contribute to an HRA, your employer may also want to establish an FSA plan so employees can fund additional expenses through pre-tax salary reduction.
Here’s an example:
The employer decides to offer employees a health insurance plan with a $2000 deductible. He decides to soften the impact of the high deductible by providing $1200 to each employee through an HRA.
John Smith is a married father with two kids, ages 4 and 9. When he looked at his estimated annual health related expenses, he figured the family would have 6 physician office visits with a $20 co-payment per visit, plus prescription co-payments of $180. He knew it was time for new glasses for him and the orthodontist would begin a three-year treatment plan for braces for the older child. With only $1200 available through the employer-funded HRA, John would have to pay at least $2700 of medical expenses out of his own pocket.
Here is how John’s FSA and HRA work together to meet his expenses.
| Expense Category | Annual Expenses | FSA | HRA |
|---|---|---|---|
| Deductible | $2,000 | $800 | $1,200 |
| Co-Pay | $300 | $300 | |
| Glasses | $400 | $400 | |
| Orthodontics | $1,200 | $1,200 | |
| Totals | $3,900 | $2,700 | $1,200 |