Discovering the Value in Consumer Directed Healthcare Accounts

Consumer directed healthcare accounts not only help users save money due to their tax-advantaged status, but also give account holders more control over their healthcare dollars. This article and infographic provide an overview of HSAs, HRAs, and FSAs, along with other helpful information.

What are Consumer Directed Healthcare Accounts?

A consumer directed healthcare (CDH) account is a type of medical savings account that:

  • Helps pay for eligible medical expenses
  • Gives account holders more control over healthcare dollars
  • Can be set up by an individual or offered through an employer

There are three primary types of CDH accounts: Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), and Flexible Spending Accounts (FSAs).


An HSA is similar to a regular bank account except that you have to be currently enrolled in a qualified high-deductible health plan (HDHP) to open the HSA account.

According to the Mercer National Survey of Employer-Sponsored Health Plans, by 2016 more than half (53%) of all U.S. large employers with 500+ employees offer an HSA-eligible group health plan. This is up from 14% in 2009 and 27% from 2012.

  • Account funds enjoy a “triple tax advantage”
    • Contribution deposits are tax-free/tax-deductible
    • Interest earned on the account balance is tax-free
    • Account funds used to pay for eligible medical expenses can be withdrawn at any time without incurring taxes or penalties
  • Funds used or withdrawn for non-medical expenses are subject to taxes and IRS penalties
  • Unspent funds carry over continuously from year to year with no limit
  • Annual contribution limits for 2022 were $3,650 for account holders with Individual coverage, or $7,300 for those with family coverage. For 2023, these limits rise to $3,850 and $7,750, respectively.

HSA account contributions can be made by either or both the sponsoring employer (if there is one) or the account-holder employee. Regardless of who contributes towards the balance, the account is solely owned by the account holder.


HRAs are both owned by and fully funded by the employer, who allocates funds to help pay for the employee’s qualified medical expenses incurred under an associated company-sponsored group health insurance plan.

  • HRAs can be paired with any health insurance plan
  • The employer decides which IRS-qualified expenses are eligible
  • There is no mandated limit on the size of the employer’s contribution
  • The employer has the option of rolling over any unused funds to the next plan year

HRA account funds cannot be used to pay for individual insurance policy premiums. The only exception is the Qualified Small Employer HRA (QSEHRA), a special type of HRA account that became available on 1/1/17 for companies that have fewer than 50 full-time employees and offer no group health plans at all. Learn more about QSEHRAs here.


FSAs are typically funded solely by the employee, although the sponsoring employer can also contribute. They can be used to pay for a wide variety of qualified medical, dental, and vision care expenses.

  • Having an FSA lowers the employee’s taxes because contributions are deducted from gross pay before payroll taxes are calculated
  • Maximum annual contribution for 2023 is $3,050.
  • The employer has the option of allowing employees to carry over unspent funds at the end of a plan year to the next year, up to a maximum of $610 per account.
  • Any unspent funds at the time an employee terminates employment become the property of the employer