What Is a Health Benefit Card? (HSA, FSA, HRA)
Understand how health benefit cards like HSA, FSA, and HRA work to manage your medical expenses and optimize savings.
Health benefit cards serve as financial tools designed to assist individuals in managing and paying for qualified healthcare expenses. They offer a structured way to handle out-of-pocket medical costs, complementing traditional health insurance.
What is a Health Benefit Card?
Health benefit cards are linked to a specialized savings or spending account intended solely for healthcare expenditures. These cards are not a form of health insurance; rather, they function as a payment method for costs not covered by an insurance plan. Often, these accounts are funded with pre-tax dollars, which can lead to potential tax savings for the cardholder. This effectively reduces taxable income. Functioning much like a debit card, these tools enable direct payment for medical products and services at the point of sale.
Types of Health Benefit Cards
Several types of health benefit cards exist, each with distinct features regarding eligibility, funding, and the handling of unused funds. The three primary types are Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs).
Health Savings Account (HSA)
A Health Savings Account is a tax-advantaged savings account that can be used for qualified medical expenses. To be eligible for an HSA, an individual must be enrolled in a High-Deductible Health Plan (HDHP). For 2025, an HDHP must have an annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage, with out-of-pocket maximums not exceeding $8,300 for self-only and $16,600 for family coverage. HSAs offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. Funds in an HSA roll over from year to year, meaning any unspent money remains available for future healthcare needs, even into retirement. For 2025, individuals can contribute up to $4,300 for self-only coverage and $8,550 for family coverage, with those aged 55 and older able to contribute an additional $1,000.
Flexible Spending Account (FSA)
A Flexible Spending Account is an employer-sponsored benefit that allows employees to set aside pre-tax money for healthcare costs. Employees elect a contribution amount through payroll deductions each plan year. For 2025, the maximum contribution limit for a health FSA is $3,300. FSAs have a “use it or lose it” rule, where unspent funds are typically forfeited at the end of the plan year. However, employers may offer exceptions: either a grace period of up to 2.5 months to use remaining funds, or a limited carryover amount. For 2025, the maximum carryover amount is $660. Employers can only offer one of these options, not both.
Health Reimbursement Arrangement (HRA)
A Health Reimbursement Arrangement is an employer-funded account used to reimburse employees for qualified medical expenses and, in some cases, health insurance premiums. Unlike HSAs or FSAs, HRAs are solely funded by the employer; employees cannot contribute their own money. Rollover rules for unused HRA funds vary by employer and plan design. Some plans allow funds to roll over annually, while others enforce a “use it or lose it” policy. If an employee leaves their job, HRA funds typically remain with the employer and are not portable. Eligible expenses are determined by the employer within IRS guidelines.
Using Your Health Benefit Card
Using a health benefit card for eligible expenses resembles a standard debit card transaction. At pharmacies, doctor’s offices, or dental clinics, the card can be swiped directly for payment. Retain itemized receipts for all purchases for substantiation.
Qualified medical expenses, as defined by the IRS in Publication 502, include costs for the diagnosis, cure, mitigation, treatment, or prevention of disease. Examples include prescriptions, co-pays, deductibles, dental care, and vision care. Certain medical equipment, like crutches or hearing aids, are also eligible. Over-the-counter medicines and supplies, such as bandages or blood sugar test kits, became eligible without a prescription after 2020.
Cosmetic procedures, general wellness items not medically necessary, vitamins, and toiletries are not eligible for reimbursement. The IRS requires all health FSA and HRA transactions to be substantiated as qualified medical expenses. This requires information detailing the service or product, date of service or sale, and the amount of the expense.
Managing Your Health Benefit Card
Managing a health benefit card involves regular account oversight and record-keeping. Most plan administrators provide online portals, mobile applications, or phone numbers to check account balances and transaction history. This allows cardholders to monitor spending and remaining funds.
If the card was not used directly for a qualified expense, a claims process is required for reimbursement. This involves submitting receipts and other supporting documentation, like Explanation of Benefits (EOBs), to the plan administrator. Maintaining thorough records, including itemized receipts and EOBs, is important for tax purposes and potential audits. If a health benefit card is lost or stolen, contact the plan administrator promptly to report the incident and arrange for a replacement.