HSA vs FSA vs HRA

HSA vs FSA vs HRA are important billing options for therapists to understand for the benefit of the client as well the benefit of their business. Therapists should be able provide high-level guidance to clients on these topics in addition to providing excellent clinical care.

Summary

• HSAs, FSAs, and HRAs are important tools that help clients manage therapy costs while offering unique tax advantages and funding options.

• HSAs require enrollment in a high-deductible health plan and offer flexibility through year-to-year rollover and potential employer contributions, whereas FSAs are employer-sponsored accounts that operate on a use-it-or-lose-it basis with pre-tax contributions.

• HRAs, on the other hand, are fully funded by employers and reimburse eligible medical expenses based on employer-defined criteria, making them less flexible than HSAs.

• Therapists can play a critical role in educating clients about these accounts, guiding them to reduce financial barriers and make informed decisions about paying for therapy services.

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Additionally, these options – Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs) can significantly impact your clients’ ability to afford therapy.

Accounts such as an HSA vs FSA vs HRA are tools to help clients manage healthcare costs more effectively. Each type of account has unique features that more or less fit an individual’s needs, depending on their circumstances.

Understanding an HSA vs FSA vs HRA can help therapists communicate with clients about payment options and eligibility for services.

Follow along as we break down the key features of an HSA vs FSA vs HRA. We’ll review how these accounts work in the context of therapy. We’ll also discuss how therapists can provide guidance on these account options to clients, potentially reducing financial barriers to therapy services.

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HSA vs FSA vs HRA: What is the difference between them?

Let’s start by defining these three account types and explaining their differences.

HSA (Health Savings Account)

• High-Deductible Health Plan (HDHP) Requirement: Opening a Health Savings Account requires individuals to be enrolled in an HDHP. This type of plan often includes a high deductible and lower premiums.

• Contributions: Contributions can be made by employer, employee, or both. Annual contribution limits are set by the IRS.

• Tax advantages: Funds in the account grow tax-free.

• Rollover: Funds roll over year to year and can earn interest.

• Flexibility: Offers a high degree of flexibility for individuals needing to manage ongoing healthcare costs, such as therapy services.

FSA (Flexible Spending Account)

• Employer-sponsored: An FSA is an employer-sponsored account for out-of-pocket medical expenses.

• Employee-funded: The account is employee funded through pre-tax payroll contributions. This reduces taxable income.

• Use-it-or-lose-it rule: This rule typically applies, meaning the individual may have to forfeit unused funds by the end of the plan year. Some employers will allow a limited carryover (typically up to $500) or may offer a grace period.

• Eligible expenses: Often used for short-term medical expenses such as therapy co-pays and other out of pocket costs. The amount available to use is limited to the amount present in the account at the time of service.

• Tax benefits: The employee’s taxable income for the year could be reduced because contributions to an FSA are made with pre-tax dollars.

HRA (Health Reimbursement Arrangement)

• Employer-funded: The account is fully funded by the employer, meaning employees cannot directly contribute to it.

• Eligibility: Can be used to cover employee medical expenses. The employer determines what services are eligible for reimbursement. This can potentially make HRAs less flexible than other accounts.

• Rollover: Unused funds may or may not roll over into the next year, depending on employer policy.

• Reimbursement process: Clients are typically responsible for submitting receipts and other relevant documentation in order to receive reimbursement for therapy costs.

HSA vs FSA vs HRA comparison usage

Eligibility for therapists’ services

• HSA: Therapy services are typically eligible under an HSA if they are deemed medically necessary. HSA accounts typically offer broad usage with IRS-defined eligible expenses.

• FSA: This account typically includes therapy services as qualified medical expenses if they are determined to be medically necessary.

• HRA: Funds in this account cover eligible expenses based on employer-defined terms. Whether therapy services are covered depends on the employer’s plan. Employers typically define eligible expenses, which may or may not include therapy.

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Flexibility of HSA vs FSA vs HRA

• HSA: This type of account offers the most flexibility for clients because it allows for fund rollover year to year. Funds can also grow by earning interest.

• FSA: FSA accounts have stricter time limits for fund usage. Typically clients are required to use their FSA funds by the end of the year. Otherwise, the individual risks losing the unused balance. Tax benefits, however, are still high and should be considered.

• HRA: HRAs may offer less flexibility than HSAs, however, the level of flexibility depends on the employer’s specific plan.

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Tax advantages of HSA vs FSA

It’s important for clients to consider the potential tax advantages that certain accounts may offer.

Contributions to both HSAs and FSAs are tax-advantaged.

HSA: Contributions are tax deductible. Withdrawals for eligible medical expenses are tax free.

FSA: Contributions are made pre-tax, which reduces the client’s taxable income. However, the “use it or lose it” rule may apply, and can be a disadvantage compared to an HSA.

The tax advantages these accounts offer can make them valuable tools for clients who want to pay for therapy services while reducing their taxable income.

HSA vs FSA vs HRA benefits for clients in therapy

Therapists can help clients understand the benefits that using an HRA, HSA, or FSA to pay for therapy services offers.

• Affordability: Clients can use these accounts to allocate funds specifically for therapy services.

• Transparency: Therapists can guide clients on how to use these accounts for copays, deductibles, and out-of-pocket expenses.

Considerations for therapists for an HSA vs FSA vs HRA

Therapists can play a key role in helping clients learn how to use their HRA, HSA, or FSA account to pay for therapy services. Here are some ways therapists can assist:

Documentation: To assist clients with the reimbursement process, provide clear invoices or receipts with proper CPT codes and a breakdown of the services provided.

Awareness of policies: Be familiar with common payer rules to assist clients in maximizing benefits.

Offer educational resources: You can help clients make informed decisions by providing them with resources or directing them to additional information about HRAs, HSAs, and FSAs. This can help clients understand how to best use their accounts to pay for therapy services.

Summary of HSA vs FSA vs HRA for therapists

Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) are healthcare accounts that clients may be able to use to pay for therapy services. They differ in key areas, such as tax advantages offered, rollover, eligible expenses included, and funding source.

Therapists can play a critical role in helping clients navigate available options to pay for therapy services. Educating clients on how HSA, FSA and HRA accounts can reduce financial barriers to accessing therapy can make services more accessible.

Therapists’ roles include providing clarity and support in the billing and reimbursement process. This often means providing clients with clear, supporting documentation and helpful guidance.

How EHR and practice management software can save you time with insurance billing for therapists

EHRs with integrated billing software and clearing houses, such as TheraPlatform, offer therapists significant advantages in creating an efficient insurance billing process. The key is minimizing the amount of time dedicated to developing, sending, and tracking medical claims through features such as automation and batching.

What are automation and batching?

• Automation refers to setting up software to perform tasks with limited human interaction.

• Batching or performing administrative tasks in blocks of time at once allows you to perform a task from a single entry point with less clicking.

Which billing and medical claim tasks can be automated and batched through billing software?

• Invoices: Create multiple invoices for multiple clients with a click or two of a button or set up auto-invoice creation, and the software will automatically create invoices for you at the preferred time. You can even have the system automatically send invoices to your clients.

• Credit card processing: Charge multiple clients with a click of a button or set up auto credit card billing, and the billing software will automatically charge the card (easier than swiping!)

• Email payment reminders: Never manually send another reminder email for payment again, or skip this altogether by enabling auto credit card charges.

• Automated claim creation and submission: Batch multiple claims with one button click or turn auto claim creation and submission on.

• Live claim validation: The system reviews each claim to catch any human errors before submission, saving you time and reducing rejected claims.

• Automated payment posting: Streamline posting procedures for paid medical claims with ERA. When insurance offers ERA, all their payments will post automatically on TheraPlatform's EHR.

• Tracking: Track payment and profits, including aging invoices, overdue invoices, transactions, billed services, service providers.

Utilizing billing software integrated with an EHR and practice management software can make storing and sharing billing and insurance easy and save providers time when it comes to insurance billing for therapists.

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Resources

TheraPlatform is an all-in-one EHR, practice management, and teletherapy software built for therapists to help them save time on admin tasks. It offers a 30-day risk-free trial with no credit card required and supports mental and behavioral health, SLPs, OTs, and PTs in group and solo practices.

More resources

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• Insurance billing 101
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References

Ding, D., & Glied, S. (2024, September). Health Care–Related Savings Accounts, Health Care Expenditures, and Tax Expenditures. In JAMA Health Forum (Vol. 5, No. 9, pp. e242896-e242896). American Medical Association. https://jamanetwork.com/journals/jama-health-forum/fullarticle/2823758

Li, B. (2024). Optimizing Healthcare Flexible Spending Account Contributions Using Inventory Management Theories: An Interdisciplinary Study. The Journal of Applied Business and Economics, 26(5), 28-40. DOI: https://www.proquest.com/openview/449b971b6da471e9f8a17a4c27de6ed1/1?pq-origsite=gscholar&cbl=38282

Machireddy, J. R. (2021). Data-Driven Insights: Analyzing the Effects of Underutilized HRAs and HSAs on Healthcare Spending and Insurance Efficiency. Journal of Bioinformatics and Artificial Intelligence, 1(1), 450-470. DOI: https://biotechjournal.org/index.php/jbai/article/view/109