What you need to know

What are the Healthcare Account Structures?

There are three types of CDHP healthcare account structures, each with their own unique benefits and limitations:  flexible spending accounts (FSAs); health reimbursement arrangements (HRAs), and health savings accounts (HSAs).


An FSA is a tax-preferred healthcare account structure which offers employees the ability to fund the account with their own money, deducted from their paychecks on a pre-tax basis. These funds enable employees to pay for qualified medical expenses as defined in Section 213(d) of the Internal Revenue Service (IRS) code.

FSA healthcare account allocations are made at the beginning of a plan year and funded through payroll deduction. Because the account allocation is determined well in advance of the need for funds, the consumer is essentially guessing at how much will be needed. If the consumer overestimates his or her needs, in most FSA healthcare accounts the unused funds are not allowed to roll over from year to year, and the plan sponsor may retain them to fund administrative costs. This has become known as “use it or lose it”.  In 2014 the IRS issued a ruling that, under certain circumstances and with some restrictions, allows employees to carry over $500 from one year to the next. Only some plans have adopted this carry over provision.

In any case, employees must plan carefully to only fund for the qualified expenses they will have during the plan year.


HRAs introduce the principle of “use it or keep it.” These healthcare accounts are employer-funded only and are used to reimburse employees for out-of-pocket healthcare expenses that the employer defines and which are generally services covered by the underlying health insurance plan. HRAs are notional accounts that have no actual cash value. Think of them as you would a credit line: they come with a promise to pay by the employer.  Unlike an FSA, the HRA funds (or promise to pay) are allowed to roll over from year to year, meaning the employee may “use it or keep it” (as long as they remain working for the same employer). Again, the employer makes this determination from one year to the next.


HSAs truly embrace the principle of “use it or keep it,” because they are owned by the consumer (employee). This healthcare account structure may be funded by the employer, the employee, or both. Money is deposited into a bank account and the funds are tax-preferred. HSAs are governed by the IRS which determines who is eligible and creates within the health plan the rules and regulations regarding the funding and spending of the money in the account.

Unlike an HRA, no matter who deposits money into an HSA, the funds belong to the accountholder. HSAs offer employees an opportunity to build equity, because every dollar not spent to pay qualified medical expenses may grow in a tax-preferred, interest-bearing account. Rollover funds may also be invested in mutual funds, similarly to in a 401(k). Think of an HSA as a medical 401(k) account.

Coaches' Takeaway

The CDHP Engine—the healthcare account structures are FSA, HRA, and HSA.

Tools & Resources

CDHPCoach’s Storage Facility, where the Coach has organized and compiled a vast amount of tools and resources for you to access.


Housed here are key components and information within the book, Bend the Healthcare Trend which was the impetus behind the CDHPCoach.


What you need to know