	Introduction

Four types of tax-advantaged accounts can be used to pay for qualifying unreimbursed medical expenses: Health Care Flexible Spending Accounts (FSAs), Health Reimbursement Accounts (HRAs), Health Savings Accounts (HSAs), and Medical Savings Accounts (MSAs). This report describes current law surrounding these accounts and provides a side-by-side comparison of their key features. Although the accounts differ in many ways, each account contains contributed income that the account holder uses to pay for qualifying medical expenses. Background

In general, qualifying medical expenses are defined in the Internal Revenue Code (IRC) at Section 213(d) and typically include deductibles, copayments, and goods and/or services not covered by insurance. The goods and/or services can include medical services rendered by physicians, surgeons, dentists, and other medical practitioners. The costs of equipment, supplies, devices, and prescription drugs are also qualifying expenses. In each case, the reimbursement is for qualifying medical and dental expenses not covered by insurance. Flexible Spending Accounts

FSAs are employer-established arrangements that reimburse employees for qualifying expenses. FSAs are usually funded through salary reduction agreements in compliance with Section 125(i) of the IRC, under which employees receive lower monetary wages in exchange for equivalent contributions to their flexible spending accounts. Employers can choose one of three mutually exclusive policies for the treatment of contributions in any given year that were not used to reimburse qualifying medical treatment in that year:
employees forfeit unused balances at the end of the year, employees have a grace period for additional claims of up to 2½ months after the end of the year (i.e., so medical expenses incurred by March 15, 2013, could be reimbursed from the FSA from the 2012 contribution), or employees have a carry-over period where they can transfer up to $500 in unused contributions into an FSA for the next plan year; the employer may specify a lower carry-over amount. Health Reimbursement Accounts

HRAs are employer-established accounts used to reimburse employees and in some instances former employees for qualifying medical expenses. Health reimbursement accounts are sometimes termed health reimbursement arrangements . However, contributions cannot be made through the employees' salary reduction agreements; only employers may contribute. Health Savings Accounts

HSAs are tax-exempt accounts that are used to pay for qualifying medical expenses. Unlike FSAs and HRAs, they are established by individuals with an insurance plan meeting certain criteria. The principal difference between HSAs and MSAs is that MSA eligibility is limited to people who are self-employed or employed by a small employer (50 or fewer employees, on average). Account Usage

Data limitations make it difficult to compare measures of account usage across the four accounts. According to the BLS survey, 40% of all civilian workers in 2012 had access to a health care FSA. Unlike with FSAs, those who hold HSAs must have HDHPs. According to a survey of private employers conducted by the Kaiser Family Foundation and the Health Research & Educational Trust (KFF/HRET) in 2012, 26% of firms offering health benefits offered an HSA-qualified HDHP.
Four types of tax-advantaged accounts can be used to pay for unreimbursed qualifying medical expenses: health care flexible spending accounts (FSAs), health reimbursement accounts (HRAs), health savings accounts (HSAs), and medical savings accounts (MSAs). Qualifying unreimbursed medical expenses are defined in the Internal Revenue Code (IRC) and typically include deductibles, copayments, and goods and/or services not covered by insurance. The goods and/or services can include medical services rendered by physicians, surgeons, dentists, and other medical practitioners. The costs of equipment, supplies, diagnostic devices, and prescription drugs are also qualifying medical expenses.
Although these four tax-advantaged health accounts share some common features, they also differ in important respects. This report provides brief summaries of the tax-exempt accounts and compares them with respect to eligibility, contribution limits, use of funds, and other characteristics for tax year 2013. A basic discussion of the four accounts is followed by a side-by-side comparison of their key features. The accounts can be summarized as follows, where all accounts reimburse qualifying medical and dental expenses not covered by insurance.
FSAs are employer-established accounts that reimburse employees for qualifying expenses. They are usually funded through salary reduction agreements under which employees receive lower monetary wages in exchange for equivalent contributions to their FSAs. HRAs are employer-established arrangements that reimburse employees for qualifying expenses. Contributions cannot be made through the employees' salary reduction agreements; only employers may contribute. Health reimbursement accounts and health reimbursement arrangements are synonyms. HSAs are savings accounts that the account holders use to pay for qualifying expenses. They are established by individuals who must hold high-deductible health plans (HDHPs) in order to establish or contribute to the HSA. Contributions to the accounts can be made by any individual or firm. MSAs are accounts that the account holders use to pay for qualifying expenses. They were established by individuals who held high-deductible health plans (HDHPs) in order to establish or contribute to the MSA. Individuals generally cannot open MSAs after December 31, 2007, but those who had accounts by this date may maintain them. MSA eligibility was limited to people who were self-employed or employed by an employer with fewer than 50 employees. Contributions may be made by the employer or account holder, but not both in the same year.
The report concludes with a brief discussion of the usage in these four accounts. Comparing usage is difficult because no single data source contains comparable information on all four accounts and the years of data availability differ across data source. In broad terms, 40% of all civilian workers in 2012 had access to a health care flexible spending account. Of those private firms offering health benefits in 2012, 26% offered an HSA-qualified HDHP.