HEALTH POLICY TYPES · 5 MIN READ

Tax-Advantaged Accounts: HSA, HRA, FSA, and Fringe Benefits

Three account types dominate employer health financing, and the exam separates them by who funds the account and what happens to unused money. A Health Savings Account (HSA) is individually owned, portable, and requires enrollment in a qualifying high-deductible health plan with no other disqualifying first-dollar coverage — Medicare enrollment, a general-purpose FSA, or a traditional HRA all block eligibility. A Health Reimbursement Arrangement (HRA) is the employer's notional account: only the employer funds it, employees cannot contribute by salary reduction, reimbursements for qualified medical expenses are tax-free, rollover of unused amounts is at the employer's option, and balances are generally forfeited at termination. The Individual Coverage HRA (ICHRA) variant reimburses premiums for individual-market coverage. A health Flexible Spending Account (FSA) is employee-funded through a cafeteria plan, capped annually, and subject to use-it-or-lose-it; a limited-purpose FSA (dental and vision only) is the version that can sit beside an HSA without destroying eligibility. Several adjacent fringe benefits ride the same tax-exclusion logic. Employer-provided group term life insurance is tax-free only up to $50,000 of coverage; above that, the employee is charged imputed income using the IRS uniform premium table, while employer-paid group permanent life does not qualify for the exclusion at all and is generally fully taxable. A dependent care FSA shelters childcare costs; qualified transportation fringes cover transit and parking; and an employer adoption assistance program lets employees exclude qualified adoption expenses up to an indexed per-child limit ($17,280 for 2025), phased out at higher incomes — though the excluded amounts still face FICA and FUTA taxes, unlike most cafeteria-plan benefits.