Choosing the right health benefit plan for your small business can feel overwhelming. Between Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs), the alphabet soup of options leaves many business owners confused. The good news? Each option serves a different purpose, and once you understand the basics, the right choice becomes clearer.

Let's break down the differences and help you decide which option best fits your business.

The Quick Overview: FSA vs HSA vs HRA

Here's a snapshot of the three main tax-advantaged health benefit options:

Now let's dive deeper into each one.

Flexible Spending Account (FSA)

What Is an FSA

A health FSA is an employer-sponsored account that lets employees set aside pre-tax dollars to pay for eligible medical expenses. Employers can also contribute, though it's not required.

FSA Key Features

• Use it or lose it: Employees must use funds within the plan year or lose them (though some plans offer a grace period or small carryover)
• Employee-funded (usually): Employees choose how much to contribute through payroll deductions
• Immediate access: The full annual amount is available at the start of the plan year
• Works with any plan: FSAs can pair with any type of health insurance

FSAs are Best For

Businesses that want to offer a simple, low-cost benefit alongside a traditional group health plan. FSAs work well when employees have predictable medical expenses.

FSA Limitations

The use-it-or-lose-it rule can be a turnoff for employees who don't spend carefully. Also, FSAs require annual active enrollment.

Health Savings Account (HSA)

What Is an HSA

An HSA is a personal savings account that employees own. It's designed to work exclusively with high-deductible health plans (HDHPs).

HSA Key Features

• Employee-owned: Funds belong to the employee forever, even if they change jobs
• Triple tax advantage: Contributions are pre-tax, growth is tax-free, and withdrawals for medical expenses are tax-free
• Funds roll over: No use-it-or-lose-it rule. Balances carry forward year after year
• HDHP required: You must be enrolled in a qualified high-deductible health plan to contribute

HSAs are Best For

Businesses offering HDHPs and looking to help employees save long-term for healthcare costs. Great for younger, healthier employees who want to build a medical nest egg.

HSA Limitations

Only compatible with HDHPs, which may not be ideal for all employees who are uncomfortable managing high out-of-pocket medical costs.

Health Reimbursement Arrangement (HRA)

What Is an HRA

An HRA is an employer-funded benefit that reimburses employees for eligible health insurance premiums and medical expenses.

HRA Key Features

• Employer-funded only: The employer controls the budget and sets allowances
• Tax-free reimbursements: Both the employer and employee benefit from tax savings
• Flexible design: Employers can customize who gets what and how much
• No use-it-or-lose-it (usually): Funds can roll over if the employer allows it

Common Types of Standalone HRAs for Small Businesses

QSEHRA (Qualified Small Employer HRA):

• For businesses with fewer than 50 full-time employees
• Annual limits set by the IRS
• Must be offered uniformly to all eligible employees

ICHRA (Individual Coverage HRA):

• Available to businesses of any size
• No annual limits
• Can be tailored to different employee classes

HRA are Best For

Small businesses that want budget control, flexibility, and simplicity. HRAs are ideal for companies with remote teams, part-time workers, or those who want to avoid the complexity of group plans.

HRA Limitations

HRAs require administrative setup and ongoing management. Employees must purchase their own individual plans, which may feel unfamiliar at first.

Which One Is Right for Your Business?

Here's how to think through your decision:

Choose an FSA if:

• You already offer a traditional group health plan
• You want to add a simple, low-cost employee benefit
• Your employees have predictable medical expenses
• You want minimal administrative burden

Choose an HSA if:

• You offer (or plan to offer) a high-deductible health plan
• Your employees want long-term savings and portability
• You want to maximize tax advantages for both you and your team
• You're comfortable with higher out-of-pocket costs

Choose an HRA if:

• You want full control over your benefits budget
• You have a small, remote, or distributed team
• You don't want the complexity of a group health plan
• You want flexibility to tailor benefits by employee class
• You want to offer tax-free health benefits without buying insurance

Can You Offer More Than One?

Yes—but with some restrictions:

• FSA or HSA or HRA + Group plan: Works great together
• HSA + HDHP: The classic pairing
• FSA or HRA + HSA: Only certain types of FSAs and HRAs (like limited-purpose versions) can work with HSAs

If you're considering combining benefits, it's worth consulting with a benefits advisor to ensure compliance.

The Bottom Line

FSAs are simple additions to group plans. HSAs are powerful long-term savings tools for HDHP users. HRAs give small business owners maximum control and flexibility without the complexity of group insurance. The right choice depends on your budget, your team's needs, and the level of control you want over your benefits strategy.

Need Help Deciding?

At LegUp Health, we specialize in helping Utah small businesses navigate their health benefit options. Whether you're comparing FSAs, HSAs, and HRAs—or just trying to figure out what makes sense for your team—we're here to help. 👉 Book a free consultation and let's find the right fit for your business.