Advantages of HSAs:

Minimal Administration: An HSA generally works well for employers that want to minimize administration and compliance issues.
Flexibility and Portability: Employers desiring to offer the most flexible solution for employees are often drawn to the HSA as it allows for portability, the opportunity for investment growth (HRAs may offer this as well), and the distribution of funds for nonmedical reasons (including for any purpose at age sixty-five without penalty).
Minimal Cost and Involvement: Employers often offer HSAs because the employer does not have to fund any portion of the account.
Owned by Employee: Employees may prefer HSAs to FSAs because the funds belong to them, therefore they do not need to worry about being as precise in estimating their medical expenses. Further, they benefit personally from lowering their healthcare expenses, unlike FSAs where an employee may end up rushing to spend money on health care at the end of the year in order to avoid losing funds.

Advantages of FSAs:

Works Well with traditional health care plans: Employers offering traditional health care plans often prefer FSAs, primarily because HSAs are not an option with traditional insurance since an HDHP is required to be eligible).
Greater Flexibilities: A traditional health plan limits the deductible so that the rollover feature of HSAs is less important and it's also easier for an employee to estimate expenses. FSAs allow employees to defer extra income into the FSA to pay for co-pays, medical bills not covered by insurance, as well as dental and vision care.
Employer Gets to Keep Unspent Funds: One significant benefit of FSAs over HSAs, from the employer's perspective, is that the employer gets to keep unspent money at the end of the year (except up to $500 rollover amount if employer allows for rollovers).

Advantages of HRAs:

Flexibility in Plan Design: HRAs allow the most flexibility in plan design and are favored by more sophisticated employers (generally larger employers that have complex benefit packages).
Ability to offer with other plans: The inability to allow for payroll deferral reduces the attractiveness of HRAs as the only offering, but HRAs can be offered in connection with a health FSA and to a limited extent an HSA.
Self-Insured Employers: HRAs also work well for employers that self-insure. The HRA provides a method for self-insuring employers to put in consumer-directed efforts to reduce overall health care costs and increase employee satisfaction at the same time.
Complicated Administration: HRAs are more complicated to administer than HSAs.
Employer Funded: A key limitation of HRAs is that only the employer can fund the HRA.

Instant Insights /

9 Top FAQs about HSAs, FSAs, and HRAs