Tax-Advantaged Accounts for Health Care
Expenses: Side-by-Side Comparison, 2013
Carol Rapaport
Analyst in Health Care Financing
October 18, 2013
Congressional Research Service
7-5700
www.crs.gov
RS21573

Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

Summary
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.

Congressional Research Service

Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

Contents
Introduction ...................................................................................................................................... 1
Background ...................................................................................................................................... 1
Flexible Spending Accounts ...................................................................................................... 2
Health Reimbursement Accounts .............................................................................................. 3
Health Savings Accounts ........................................................................................................... 4
Medical Savings Accounts ........................................................................................................ 5
ACA Market Reforms and Tax-Preferred Accounts .................................................................. 5
Account Usage ............................................................................................................................... 12
Accessibility ............................................................................................................................ 12
Enrollment ............................................................................................................................... 12

Tables
Table 1. Summary of General Rules for FSAs, HRAs, HSAs, and MSAs, 2013 ............................ 6

Contacts
Author Contact Information........................................................................................................... 13

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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

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).1 Qualifying
medical expenses typically include deductibles, copayments, and goods and/or services not
covered by insurance. (More details are given below.) This report describes current law
surrounding these accounts and provides a side-by-side comparison of their key features. The
report also provides an indication of the relative prevalence of the accounts.
There are two broad categories of tax provisions that can lower an individual’s tax liability
because of qualifying medical expenses. First, qualifying medical expenses can be a tax
deduction. Tax filers can itemize medical expenses incurred by him- or herself, spouse, and
dependents if these expenses are over the legislative minimum.2
Second, tax filers can use one (or occasionally more) of the tax-advantaged accounts discussed in
this report. Although the accounts differ in many ways, each account contains contributed income
that the account holder uses to pay for qualifying medical expenses. Each account provides tax
savings to the account holder because the money contributed to the account is not considered a
part of the individual’s adjusted gross income.3 Therefore, no taxes are paid on this income, and
for those arrangements where the income is placed in an account, no taxes are paid on interest
earned on the income in the account. Moreover, the tax filer does not need to itemize deductions
to receive tax savings from the account.
Itemized deductions cannot be funded through a tax-advantaged account, and expenses funded
through an account cannot be declared as itemized deductions. In other words, “double counting”
is prohibited.
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.4 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. To qualify, the medical care must be

1 For additional general information, see Internal Revenue Service, Health Savings Accounts and Other Tax-Favored
Health Plans, IRS publication 969, January 20, 2013, http://www.irs.gov/pub/irs-pdf/p969.pdf.
2 The phrase “tax filer” is used for simplicity. A more complete phrase is “tax filing unit.” The tax filer may be an
individual, a couple filing individually, a couple filing jointly, or the head of a household. A couple can be a man and a
woman, two men, or two women; for more information, see IRS Revenue Ruling 2013-17.
3 Adjusted gross income is equal to gross income minus certain exclusions (e.g., public assistance payments,
contributions to retirement plans) minus some above-the-line deductions (e.g., trade and business deductions, losses
from sale of property, and alimony payments).
4 Section 213(d) describes which expenses may be taken into account in determining the itemized deduction for
medical expenses. Qualifying medical expenses are further explained in Internal Revenue Service, Medical and Dental
Expenses, IRS Publication 502, December 10, 2012, pp. 5-17, http://www.irs.gov/pub/irs-pdf/p502.pdf.
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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

primarily used to alleviate or prevent a physical or mental defect or illness. Care used to benefit
general health (e.g., exercise equipment, vitamins, and vacations) is not a qualifying medical
expense. Some examples of qualifying medical expenses are breast reconstruction surgery,
disabled dependent care expenses, fertility enhancement (as specified), hospital services, lifetime
care—advance payments, long-term care, psychiatric care, special education, and transplants.
Some examples of expenses that are not qualifying medical expenses are cosmetic surgery,
funeral expenses, health club dues, and household help. Over-the-counter medications are not
qualified medical expenses unless prescribed by a physician. Finally, insulin is always a
qualifying medical expense, whether or not it is purchased with a prescription.
Table 1 provides a more detailed side-by-side comparison of the laws and regulations governing
each account. In each case, the reimbursement is for qualifying medical and dental expenses not
covered by insurance. The beneficiaries for all accounts are the employee, spouse, and
dependents.5
Flexible Spending Accounts
FSAs are employer-established arrangements that reimburse employees for qualifying expenses.6
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.7 For example, employees may forgo $100 a
month in their 2013 paychecks, which will result in a $1,200 annual contribution to their FSA.
The entire annual amount of an FSA must be made available to employees at the beginning of the
year. Suppose the above employee had surgery during February, and incurred over $1,500 in
unreimbursed qualifying medical expenses. The employee could use the full $1,200 annual FSA
contribution to help pay for these expenses, even though he or she may have contributed only
$200 into the account by that point in the year.
Beginning in 2013, contributions are limited to $2,500 per employee. If each member of a
married couple is eligible to enroll in an FSA, then each member can contribute up to $2,500. The
FSA limits are adjusted for inflation yearly using the Consumer Price Index for All-Urban
Consumers (CPI-U).8 Prior to 2013, the IRS did not set a maximum annual contribution. Plans
typically had a dollar or percentage maximum for elective contributions from salary reductions.
Within these limits, employees choose how much to put into their accounts, and this amount can
vary from year to year. Employees forfeit unused balances at the end of the year unless the
employer offers 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).

5 Other individuals can be account beneficiaries, especially following the death of the account holder.
6 For many years, the IRC had no explicit reference to FSAs. The Health Insurance Portability and Accountability Act
of 1996 (P.L. 104-191) added a definition in subsection 106(c)(2) when it disallowed coverage of long-term care
through these accounts. For additional information on FSAs, see archived CRS Report RL32656, Health Care Flexible
Spending Accounts, by Janemarie Mulvey.
7 Employers are also permitted to fund FSAs through nonelective payments to the employees. In this case, the
payments to the employee are tax exempt under Section 105 and Section 106 of the IRC. Moreover, there is no limit on
these nonelective employer payments, and they may be in addition to the $2,500 limit imposed on employee Section
125(i) salary reduction agreements.
8 Patient Protection and Affordable Care Act, P.L. 111-148, as amended, Section 9005.
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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

While compensation received as wages is subject to income taxes, as well as Social Security and
Medicare taxes, compensation received as FSA contributions is not subject to these taxes. For this
reason, employees who anticipate having health expenses not covered by insurance may prefer
FSAs over monetary wages.
As mentioned above, many FSAs are funded by salary reduction agreements. These FSAs are
governed by Section 125 of the IRC, which exempts contributions from taxes even though the
employees have the choice to receive taxable wages.9 However, if FSAs are funded by
nonelective employer contributions then their tax treatment is not governed by the cafeteria plan
provisions in Section 125; in this situation, the employee does not have a choice between
receiving cash and a normally nontaxable benefit. Instead, the benefits are nontaxable since they
are directly excludable under some other provisions of the Code. For example, nonelective
employer-funded FSAs for health care are tax-exempt under Sections 105 and 106.
Most rules regarding FSAs are not spelled out in the IRC; they were initially included in proposed
regulations issued by the Internal Revenue Service (IRS) in 1984 and 1989, and have been
subsequently modified.10
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. As is the case with FSAs, contributions
are not subject to either income or employment taxes. However, contributions cannot be made
through the employees’ salary reduction agreements; only employers may contribute.
HRAs differ from FSAs in several important respects. Employers may restrict the types of
medical and health services that are eligible for reimbursement from the list of qualified medical
expenses. For example, an employer may choose not to reimburse expenses associated with
acupuncture treatments even though the IRS considers acupuncture a qualifying medical expense.
Employers need not actually fund HRAs until employees draw upon them, and the total
reimbursement amount for a coverage period need not be available at all times during the period.
In addition, the coverage period for the reimbursement amount may be less than a year, and
HRAs reimbursements can be limited to amounts previously contributed.11
Unused HRA balances may be carried over indefinitely, although employers may limit the
aggregate carryovers and the carryovers must be used for qualified medical expenses. Finally,
employees who change jobs or retire may take the funds in their HRA with them, if their
employer has set up an account which allows for this. The provisions in this paragraph, however,
are optional (not required) for the employer.

9 Section 125 governs cafeteria plans; it provides an exception to the constructive receipt rule, which requires taxation
of what is normally nontaxable income when taxpayers have the choice of receiving taxable income or nontaxable
income. However, not all cafeteria plans have FSAs and not all FSAs are part of cafeteria plans,
10 See Mulvey, Op. Cit., and Internal Revenue Service, “Employee Benefits—Cafeteria Plans,” 72 Federal Register
43938 - 43989, August 6, 2007. A final version of these rules was never published. FSAs were not specifically
authorized by legislation.
11 Internal Revenue Service, Notice 2002-45, Part IV.
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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

HRAs are governed by Section 105 of the IRC, which allows health plan benefits used for
medical care to be exempt from taxes, and Section 106 of the IRC, which allows employer
contributions to those plans to be tax-exempt. Rules regarding HRAs were spelled out by the IRS
in 2002.12
Health Savings Accounts
HSAs are tax-exempt accounts that are used to pay for qualifying medical expenses.13 Unlike
FSAs and HRAs, they are established by individuals with an insurance plan meeting certain
criteria. In particular, the individual must have a high deductible health (insurance) plan (HDHP).
For those individuals with employer-sponsored insurance, the employer must offer an HSA-
qualified plan for the employee to be eligible for an HSA. An individual may also purchase an
HSA-qualified insurance plan through the individual insurance market.
To be HSA-qualified, the HDHP must meet certain requirements. In 2013, an HDHP must have a
deductible of at least $1,250 for self-only coverage and $2,500 for family coverage.14 The
deductible is indexed annually for inflation using the CPI-U. There are other criteria including
that the plan holder have no other major medical health insurance policy.
In 2013, HSA contributions are limited to $3,250 for self-only coverage and $6,450 for family
coverage. These limits are indexed annually by the CPI-U. An additional annual contribution of
$1,000 is allowed for people who were age 55 and older at the end of their last tax year and not
enrolled in Medicare as of the current month; this contribution is not indexed for inflation. HSA
holders cannot contribute to their account in any month they do not have qualifying HDHPs as of
the first day of the month. On the other hand, HSA holders can draw funds from their accounts
even if they are not permitted to contribute.
HSAs can carry significant tax advantages. Contributions made by employers are exempt from
income and employment taxes. Account owners may deduct contributions they make from
adjusted gross income; in other words, owners do not have to itemize deductions to take
advantage of this tax savings. Withdrawals for qualifying medical expenses are not taxed; those
used for any non-medical purpose are taxable. In addition, withdrawals for non-medical purposes
are subject to a 20% penalty except in cases of disability, death, or attaining age 65. Unused
balances may be carried over from year to year without limit.
HSAs were first authorized by the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA, P.L. 108-173). Most statutory rules are in Section 223 of the IRC. The
Treasury Department provides revenue guidance as well.15

12 Internal Revenue Service, Notice 2002-45. HRAs were not specifically authorized by legislation.
13 For additional information on health savings accounts, see archived CRS Report RL33257, Health Savings Accounts:
Overview of Rules for 2012, by Janemarie Mulvey.
14 On May 2, 2013, the IRS published the deductible and contribution limits for 2014. See Internal Revenue Procedure
2013-25, available at http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
15 The remainder of the rules is in various sections of the IRC. For additional information, see archived CRS Report
RL33257, Health Savings Accounts: Overview of Rules for 2012, by Janemarie Mulvey.
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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

Medical Savings Accounts
MSAs, also known as Archer MSAs,16 are a precursor to HSAs.17 Like HSAs, MSAs can be
established and contributions made only when insurance plan holders have an HDHP and no
other coverage, with some exceptions. Contributions made by employers are exempt from income
and employment taxes. Contributions made by account owners (allowed only if the employer
does not contribute) are deductible for income-tax purposes even if the account owner does not
itemize deductions. Withdrawals are not taxed if used for medical expenses; those used for non-
medical purposes are taxable and are subject to a 20% penalty except in cases of disability, death,
or attaining age 65. Unused balances may be carried over from year to year without limit.
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). In
addition, the MSAs’ minimum deductible levels are higher and the contribution limits are lower.18
MSAs were first authorized by the Health Insurance Portability and Accountability Act of 1996
(HIPAA, P.L. 104-191). HIPAA limited the total number of MSAs that could be created by all
employers. With one exception, no MSAs could be created after December 31, 2007, although
MSAs existing at that time were grandfathered. The exception is that an employee who begins to
work for an employer that already sponsors MSAs is permitted to open an MSA. Most statutory
rules governing MSAs are in Section 220 of the IRC.19
ACA Market Reforms and Tax-Preferred Accounts
The Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended) specified that
health insurance plans cannot include a cap on benefits. Because HRAs do cap benefits, some
have questioned whether HRAs are permitted after the ACA market reforms take effect on
January 1, 2014. The IRS has ruled that HRAs are permitted when they are integrated with the
other employer-provided coverage, and are not permitted when they are stand alone accounts. An
integrated HRA is one where the employees are enrolled in the primary group health plan
coverage and no one but the employees are permitted to enroll in the primary group health plan
coverage.20
Most other HRAs are stand-alone HRAs and will not be permitted coverage on or after January 1,
2014.21 For example, it is not permitted for an employer to provide employees with HRA funding
to purchase coverage on the individual market.

16 Representative Bill Archer sponsored the authorizing legislation.
17 This discussion excludes Medicare MSAs.
18 Details are provided in Table 1.
19 Section 6693, Section 4973, and Section 4975 of the IRC also contain provisions governing MSAs.
20 For more information, see Department of Labor, FAQs About Affordable Care Act Implementation (Part X1),
January 24, 2013, http://www.dol.gov/ebsa/pdf/faq-aca11.pdf.
21 Stand-alone HRAs that are retire-only plans can continue on or after January 1, 2014, because the ACA market
reforms do not apply to retiree-only plans.
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Table 1. Summary of General Rules for FSAs, HRAs, HSAs, and MSAs, 2013
Health Care Flexible
Spending
Accounts (FSAs)
Health Reimbursement
Health Savings Accounts
Medical Savings Accounts
Accounts (HRAs)
(HSAs)
(Archer MSAs)
IRC Sections 105, 106, and

125
IRC Sections 105 and 106
IRC Section 223
IRC Section 220
Setting up an Account
Eligibility
Employees whose employers
Employees whose employers
Individuals with a qualifying high-
Individuals with a qualifying
offer this benefit. Former
offer this benefit. Former
deductible health insurance plan
HDHP who are self-employed,
employees and retirees may be
employees and retirees may be
(HDHP) on the first day of the
employees of a small employer
included. The self-employed are
included. The self-employed are
month who are not enrol ed in
(average of 50 or fewer
not eligible. Any size employer
not eligible. Any size employer
Medicare. Individuals with other workers), or a formerly-small
can offer FSAs.
can offer HRAs.
major medical policies are not
employer. Ineligible individuals
eligible. Individuals with health
may keep previously established
FSAs or HRAs are usual y not
accounts but cannot make
eligible.a Individuals who can be
contributions. December 31,
claimed as another’s dependent
2007, was generally the final day
are not eligible.b Married
for most individuals to open a
couples cannot have joint HSAs. new MSA. The exception is that
However, HSAs can be used to
an employee who begins to
pay qualified medical expenses
work for an employer who
in a family HDHP. Ineligible
already sponsors MSAs is
individuals may keep previously
permitted to open a MSA.
established accounts but cannot
make contributions.
CRS-6

Health Care Flexible
Spending
Accounts (FSAs)
Health Reimbursement
Health Savings Accounts
Medical Savings Accounts
Accounts (HRAs)
(HSAs)
(Archer MSAs)
IRC Sections 105, 106, and

125
IRC Sections 105 and 106
IRC Section 223
IRC Section 220
Definition of qualifying health
Any major medical group health
Any integrated major medical
Must have an HDHP. Self-only
Must have an HDHP. Self-only
insurance
plan made available for the year
group health plan.
deductible must be at least
deductible must be at least
to employees by the employer,
$1,250; the family deductible
$2,150 but not over $3,200;
but only if the maximum benefit
must be at least $2,500. Annual
family deductible must be at
payable to any participant does
out-of-pocket expenses for
least $4,300 but not over
not exceed two times the
covered benefits cannot exceed
$6,450. Annual out-of-pocket
participant’s salary reduction
$6,250 for self-only coverage
expenses for covered benefits
election for the year (or, if
and $12,500 for family coverage. cannot exceed $4,300 and
greater, does not exceed $500
Deductible need not apply to
$7,850 for self-only and family
plus the amount of the
preventive care.c Out-of-pocket coverage, respectively. Out-of-
participant’s salary reduction
limits do not include premiums.d pocket limits do not include
election).
premiums.d
Cost-of-living adjustments for
Not applicable (not associated
Not applicable (not associated
Yes; adjustments based on the
Yes; adjustments based on the
insurance deductibles,
with a particular insurance
with a particular insurance
Consumer Price Index for All-
Consumer Price Index for All-
copayments, and other
policy).
policy).
Urban Consumers (CPI-U).
Urban Consumers (CPI-U).
monetary provisions
Role of a financial institution or
None.e None.e
Individual must work with a
Individual must work with a
trustee for the account holder
trusteef to set up an account.
bank or insurance company to
set up an account.
Contributing to an Account
Source of contributions
By employee (through salary
Only by employer.
By any person (including the
By employer or account owner,
reduction plan), by employer
employer) on behalf of an
but not both in the same year.
(through nonelective payments
eligible individual.
to employees), or both.
Fee to the Patient-Centered
Owed by a smal number of plan Owed by plan sponsors (for
None owed, although the
None owed, although the
Outcomes Research Instituteg
sponsors (for self-insured
self-insured insurance plans) or
HDHP associated with the HSA
HDHP associated with the MSA
insurance plans) or insurers (for insurers (for other insurance
would owe the fee.
would owe the fee.
other insurance plans).h
plans).i
CRS-7

Health Care Flexible
Spending
Accounts (FSAs)
Health Reimbursement
Health Savings Accounts
Medical Savings Accounts
Accounts (HRAs)
(HSAs)
(Archer MSAs)
IRC Sections 105, 106, and

125
IRC Sections 105 and 106
IRC Section 223
IRC Section 220
Carryover of unused funds
Balances remaining at year’s end Permitted, although some
Full amount may be carried over Full amount may be carried over
(or up to 2½ months after
employers limit the amount that indefinitely. A qualified funding
indefinitely. One rollover into
year’s end, if the employer
can be carried over.
distribution may be made from
an HSA is allowed per year. The
permits) are forfeited to the
a traditional IRA or Roth IRA
rollover must be made within
employer.o
into an HSA, subject to
60 days of the date of receipt of
eligibility.p
the funds that are being rolled
over.
Closing an Account
Ownership and portability of
The employer owns the
Ownership is at discretion of
The individual owns the
The individual owns the
account
account. Balances are generally
employer, although subject to
account. The account funds
account. The account funds
forfeited at termination,
COBRA provisions.n
remain with the individual when
remain with the individual when
although extensions for those
he or she separates from the
he or she separates from the
covered by COBRA sometimes
employer.
employer.
apply.n,o
Death of account holder
Benefits not covered after the
If benefits are paid to individuals If spouse is designated
If spouse is designated
day of death.
other than the employee’s
beneficiary, becomes spouse’s
beneficiary, it becomes spouse’s
spouse or dependents, benefits
HSA. Otherwise the account
MSA. Otherwise the account
become taxable.
becomes taxable.
becomes taxable.
Source: Internal Revenue Service, Health Savings Accounts and Other Tax-Favored Health Plans, Publication 969, January 2013, http://www.irs.gov/publications/p969/
index.html.
a. Individuals with an HDHP and one or more of the fol owing accounts can contribute to an HSA: (1) A “limited purpose FSA” or “limited purpose HRA.” These
arrangements pay only for preventive care and for medical care not covered by the HSA’s qualifying health insurance (e.g., vision and dental care); (2) A “suspended
HRA,” which does not pay or reimburse the medical expenses incurred during the suspension period except preventive care and medical care not covered by the
HSA’s qualifying health insurance; (3) A “post-deductible FSA” or “post-deductible HRA.” These arrangements do not pay for or reimburse any medical expense
until the deductible of the HSA’s qualifying health insurance has been met; or (4) A retirement HRA which pays for or reimburses only those medical expenses
incurred after retirement. These limited types of accounts are not discussed in this report.
b. The IRS defines a dependent as a qualifying child or a qualifying relative who satisfies certain rules concerning whether the tax-filer is claimed as a dependent,
whether the child or relative files a joint return, and the citizenship and residency status of the child or relative. The IRS definition of a qualifying child is based on
the relationship with the tax-filer, age, residence, source of the child’s support, and whether the child files a joint return. The IRS definition of a qualifying relative is
based on qualifying-child status, member of household or relationship, gross income of the relative, and source of the relative’s support. There is no age
requirement for qualifying relatives. For more information, see Internal Revenue Service, Exemptions, Standard Deduction, and Filing Information, 2012, Publication 501,
CRS-10

January 2013, pp. 11-22, http://www, http://www.irs.gov/pub/irs-pdf/p501.pdf. Note that the IRS definition of dependent is different from the definition used by many
health insurance plans,
c. Preventive care includes some evidence-based items or services evaluated by the United States Preventive Services Task Force (USPSTF); immunizations that have in
effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (CDC); evidence-informed
preventive care and screenings (for infants, children, and adolescents) provided for in the comprehensive guidelines supported by the Health Resources and Services
Administration (HRSA); and additional preventive care and screenings for women not described by the USPSTF, as provided in comprehensive guidelines supported
by HRSA.
d. In addition, insurers or employers may require that out-of-pocket limits not include out-of-network services if the plan uses a network of providers.
e. A bank has a role if participants receive a debit card associated with the account.
f.
Qualifying trustees include banks, insurance companies, and anyone already approved by the IRS to be a trustee of individual retirement accounts or Archer MSAs.
g. The Patient Protection and Affordable Care Act (ACA, P.L. 112-148) created the Patient Centered Outcomes Research Institute to study comparative effectiveness,
among other topics. This institute is furnished by mandatory fees paid by insurers (for conventional y-insured plans) or sponsors (for self-insured plans). The plan
sponsor is usually the employer.
h. FSAs where the employer contributes over $500 during the year owe the fee for that year.
i.
The fee owned by HRS sponsors may be smaller than the standard fee under certain circumstances.
j.
Qualifying medical expenses are defined in Section 213(d) of the IRC. The limitations and additions to qualifying medical expenses are found in IRC regulations and
notes.
k. For those enrol ed in an HRA and FSA at the same time, the accounts cannot pay for the same expenses. Amounts in the HRA must be exhausted before
reimbursements may be made from the FSA, except for qualifying expenses not covered by the HRA. When a person is enrol ed in an HRA and an FSA, there is no
requirement that the FSA be limited in purpose or post-deductible (see note a). However, the employer has the authority to implement such policies.
l.
For more information, see archived CRS Report R40729, Premium Conversion of Health Insurance, by Janemarie Mulvey.
m. Long-term care insurance is private insurance designed to protect against the risk associated with the potential cost of financing expensive long-term care services
and supports. Long-term care insurance premiums are a qualified medical expense. Deductions for long-term care insurance premiums increase with the age of the
beneficiary and are adjusted for inflation annual y. For more information, see CRS Report R40601, Factors Affecting the Demand for Long-Term Care Insurance: Issues for
Congress, by Janemarie Mulvey.
n. In 1985, Congress enacted legislation to provide some former employees temporary access to their former employers’ health insurance. Under Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272), an employer with 20 or more employees must provide the option of continuing an
individual’s health coverage under the employer’s group health insurance plan if the individual experiences a qualifying event. Qualifying events include, for the
employee, termination or reduction in hours of employment (for reasons other than gross misconduct). Qualifying events include, for spouses and dependent
children, the death of the covered employee, divorce or legal separation from the employee, the employee’s becoming eligible for Medicare, and the end of a child’s
dependency under a parent’s health insurance policy.
o. Military reservists ordered or called to active duty are permitted to remove funds from their FSAs without facing penalties.
p. Rules for eligibility are found in IRS Bul etin 2008-35.
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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

Account Usage
Data limitations make it difficult to compare measures of account usage across the four accounts.
Nevertheless, this section provides a brief overview of the available information, distinguishing
between the accessibility of the account and the enrollment in the account.22 It is easier for each
individual employer to report whether it offers one of these accounts than to report the number of
employees actually enrolled. For this and perhaps other reasons, published data are more readily
available on access than on enrollment. Because very few new MSAs are being created, and
because the number of MSAs has always been limited, there are almost no data available on their
number. The report also presents measures of the enrollment in each of the four account types. It
should be emphasized that the data are not comparable across the accounts.
Accessibility
The National Compensation Survey, a survey of employers conducted by the Bureau of Labor
Statistics (BLS), reports the percent of workers who have access to health care FSAs. According
to the BLS survey, 40% of all civilian workers in 2012 had access to a health care FSA. When
viewed by firm size, 53% of civilian workers in firms with 100 or more workers had access to an
FSA. The accounts were not as common for civilian workers in small businesses. In
establishments with fewer than 100 employees, 20% of the workers had access to a health care
FSA.23
The definition of accessibility is not as straightforward for HSAs and HRAs. Unlike with FSAs,
those who hold HSAs must have HDHPs. One measure of HSA accessibility is therefore
possession of an HDHP that qualifies for an HSA. 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.24
This percent was 12% in 2010 and 18% in 2011.25 Workers in larger firms were more likely to
have access to an HDHP than those in smaller firms. Although employers are not required to
restrict HRA benefits to employees with HDHPs, most employers chose to do so. Of employers
offering health benefits, there was no discernible upward or downward trend in the percent who
offered an HDHP and an HRA; the percentage was 4% in 2010, 7% in 2011, and 5% in 2012.
Enrollment
The Employee Benefit Research Institute conducts annual internet surveys of adults ages 21 to
64, inclusive. The survey measures the number of adults with either an HSA or an HRA. The

22 For more information about the data sources, see archived CRS Report RS22877, Health Savings Accounts and
High-Deductible Health Plans: A Data Primer, by Carol Rapaport.
23 Bureau of Labor Statistics, National Compensation Survey, Employee Benefits in the United States, Table 41,
http://www.bls.gov/ncs/ebs/benefits/2012/ownership/private/table25a.pdf.
24 The Henry J. Kaiser Family Foundation and the Health Research & Educational Trust, Employer Health Benefits
2012 Annual Survey, 2012, pp. 132-136, http://ehbs.kff.org/pdf/2012/8345.pdf.
25 The percent estimates are not significantly different from the estimates for the previous year at a 95% level of
confidence.
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Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

results are then extrapolated. The research concluded that the combined number of adults with
either an HSA or an HRA was 4.8 million in 2009, 5.4 million in 2010, 8.5 million in 2011, and
11.6 million in 2012.26 A substantial majority of these individuals are likely to be HSA holders.

Author Contact Information

Carol Rapaport

Analyst in Health Care Financing
crapaport@crs.loc.gov, 7-7329

26 Different people were surveyed in each year. Paul Fronstin, Health Savings Accounts and Health Reimbursement
Arrangements: Assets, Account Balances, and Rollovers, 2006-2012, Employee Benefit Research Institute, Issue Brief
Number 382, January 2013, p. 7, http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=5153.
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