What Is an HSA? How Health Savings Accounts Work With HRAs

Health Savings Accounts (HSAs) are having a bit of a moment, and not just because healthcare costs keep going up. 📈

In a nutshell, last year’s federal budget bill (the “One Big Beautiful Bill”) made Marketplace Bronze and Catostrophic plans eligible for HSA in 2026, opening the door for millions more people to contribute. With more employees suddenly HSA-eligible, it’s a good time to revisit how they fit into the rest of your benefits mix.

We’ll break down what an HSA is, how it works, and where it fits (or doesn’t) alongside HRAs like ICHRA and QSEHRA.

What is an HSA?

A Health Savings Account (HSA) is a special type of savings account designed to help you pay for out-of-pocket healthcare costs. Individuals (or their employers) can contribute money to it, but the funds can only be used to pay for healthcare costs like doctor visits, prescriptions, deductibles, and co-insurance.

If your employer offers an HSA, they’ll usually point you toward a preferred vendor to set it up. If you want to start this type of account for yourself, many banks and financial institutions offer it.

There are a few ground rules for HSAs: You can only contribute money to an HSA if you’re enrolled in a high-deductible health plan (HDHP). You also can only contribute a certain amount of money per year. For 2026, contribution limits have been increased to $4,300 for individual coverage and $8,550 for family coverage.

Key Benefits of an HSA

It can grow over time, like an investment. After you meet a certain dollar threshold (often around $1,000-$2,000, depending on the provider), you can invest your HSA dollars in mutual funds, giving your healthcare savings the chance to grow over time. This is important because…

The money rolls over, year after year. Unlike a Flexible Spending Account (FSA), you’ll never have to worry about spending your HSA dollars within a certain timeframe. You can use it for healthcare expenses today, save it for a big expense down the road, or even let it grow over time for future medical costs. There’s no worry about “use it or lose it” here.

Triple Tax Advantage. As long as the money is used for qualified medical expenses, HSAs enjoy a triple tax benefit; there’s no tax on the money going in, it grows tax-free over time, and withdrawals aren’t taxed either. It’s worth noting here that HSAs also have special withdrawal rules in retirement; after age 65, you can take money out for non-medical expenses (although it’s taxed like regular income), while withdrawals for qualified medical expenses remain tax-free.

It’s yours, forever. If you leave your job or switch jobs, the account belongs to you—not your employer—so it’s yours to keep. If you switch health plans, you can keep contributing. If you switch to a non-HDHP plan, you can’t contribute funds to an HSA for that year, but the funds already in the account are still there to grow or use on future medical expenses.

How HSAs Can Work With HRAs

If you’re an employer contributing to your employees’ health insurance through a defined contribution model like ICHRA or QSEHRA, you’ve got some flexibility in how far you want that support to go. Maybe covering premiums feels like enough… Or maybe you’re also thinking about helping with out-of-pocket medical expenses.

One of the biggest decisions you’ll make when designing an HRA is whether the monthly “allowance” covers premiums only, or premiums and qualified medical expenses. You can absolutely do both. For example, let’s say you offer a $900/month HRA allowance, and an employee’s health plan premium is $650. That leaves $250 per month for the employee to use toward eligible out-of-pocket expenses.

Simple enough—but here’s the catch: structuring your HRA this way will typically disqualify employees from contributing to a Health Savings Account.

If you have (or expect to have) employees enrolled in high-deductible health plans, an HSA offers long-term value that HRA contributions don’t, where employees own the plan and growth, and have the opportunity to save for future health care costs.

Choosing the Right HSA–HRA Strategy

The secret formula to making an HSA work with an HRA is avoiding first-dollar health coverage. What’s first-dollar health coverage? It’s when a health plan starts paying for medical expenses right away, before an employee has to meet a deductible.

There are a few ways to structure an HRA so that you can support employees and still allow them to be eligible for an HSA:

• Premium-only HRA (the most common option)
  This is when your ICHRA or QSEHRA only covers premiums for health plans, and no out-of-pocket medical expenses.
• Post-deductible HRA
  This is a type of HRA that reimburses medical expenses only after the employee meets their deductible.
• Limited-purpose HRA (like EBHRA)
  An Excepted Benefit HRA (EBHRA) is a limited reimbursement option that only covers dental, vision, and short-term or supplemental expenses.

So, if HSAs are a key part of your benefits philosophy, how you structure it if you offer an HRA really matters. The right design can support HSA eligibility and long‑term employee savings; the wrong one can unintentionally shut HSAs off.

At Benafica, we help employers design HRAs that align with their goals and stay compliant.

Contact us today at 651-287-3253 or hra@benafica.com.