If you’re looking to supplement your organization’s group health insurance plan to help cover your employees’ out-of-pocket costs, you have two main options: Section 105 plans, such as the group coverage HRAs (GCHRAs), and Section 125 cafeteria plans, such as health savings accounts (HSAs).
But what’s the difference between a GCHRA and a HSA, and how do you know which is right for your organization?
Simply put, a GCHRA works alongside group health insurance and allows employers to reimburse their employees' for their deductibles, copays and other qualifying medical expenses through an employer-funded allowance of tax-free money.
On the other hand, HSAs help employees save money for healthcare as long as they are covered by a high-deductible health plan (HDHP). Employers and employees can make contributions to the HSA and account funds never expire so they can be saved for future use.
In this article, we’ll go into more detail on how GCHRAs compare to HSAs so you can better understand which option will best support your employees’ health needs.
Short on time? Download the GCHRA vs. HSA guide to read later!
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An HSA is a tax-advantaged, employee-owned account that allows the employee to save pre-tax money for qualified medical expenses. With an HSA, the employer pre-funds the account after enrolling employees in an HSA-qualified high deductible health plan (HDHP). Annual contribution limits are set by the IRS outlining the minimum deductible and maximum out-of-pocket costs each year.
Employees won’t be taxed when they withdraw money from their HSA, as long as they use the money to pay for medical expenses specified in IRS Publication 502. They can also withdraw money at any time, however, they can only contribute money to the account while they are covered under a qualified HDHP.
Other highlights of an HSA:
Want more information? Download our HRA vs. HSA vs. FSA comparison chart
A GCHRA helps employers supplement their employees’ out-of-pocket medical costs that aren’t fully paid for in their group health insurance plan. With a GCHRA, rather than pre-fund a savings account, the employer agrees to reimburse employees for these medical expenses.
During setup, the employer creates plan documents describing the terms of the plan, including the amount they will reimburse employees and what expenses will be covered. After making an eligible purchase, employees submit documentation of the expense, typically with receipt or invoice, to their HRA administrator.
Once the expense is reviewed and verified, the employee is reimbursed up to a maximum pre-determined allowance amount, which can accrue monthly or be made entirely available upfront. Unlike HSAs, there’s no limit to the amount the employer can reimburse employees.
Other highlights of a GCHRA:
Eager to learn more? Download our complete guide to offering a GCHRA!
While both are great choices to supplement your group health insurance, the lack of contribution requirements make GCHRA much more flexible than an HSA. The chart below covers key differences and guidelines to follow when deciding whether to offer a GCHRA or an HSA.
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When to offer a GCHRA |
When to offer an HSA |
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You want to boost your traditional group health insurance benefit. |
You want to boost your traditional group health insurance benefit. |
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You don’t want to offer a HDHP, but want to give employees better coverage by covering out-of-pocket expenses. |
You want to offer an HSA-qualified HDHP. |
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You want to leverage the benefit for retention by making it contingent on the employee’s continued employment. |
You want to ensure medical care for your employees even if they leave your company. |
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You want to control your costs by having employees pay for some of their expenses using a deductible and/or cost sharing. |
You don’t offer a retirement account, but want a blended option for employees to use when they reach retirement age. |
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You want the flexibility to choose the expenses your employees can submit for reimbursement. |
You don’t want to set limitations on what employees can get reimbursed. |
Check out more differences between a GCHRA and an HSA in our full comparison chart
GCHRAs and HSAs are both good ways for employers to supplement a group health insurance plan. Understanding which option is right for your organization depends on the type of group health plan you are offering and the level of flexibility and control you want over the benefit.
If you’re looking for a customizable health benefit that will boost your group health insurance, a GCHRA may be just what you need. Schedule a call with a personalized benefits advisor at PeopleKeep to learn more.
This article was originally published on October 15, 2020. It was last updated November 12, 2021.