An employer establishes a Health Reimbursement Arrangement (HRA) for its employees. Which statement correctly describes how an HRA differs from an HSA?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An HRA is an employer-funded account that reimburses qualified medical expenses on a tax-free basis. The employer owns the arrangement and its contributions, and unused balances generally carry forward to later plan years (there is no automatic year-end use-or-lose). Because the account belongs to the employer, the HRA does not travel with the employee when employment ends — unlike an HSA, which is individually owned and portable. California exam materials cover HRAs under consumer-driven health plans (AH-III.A.1b), and the key contrast tested is employer-funded and non-portable versus individually owned and portable.
Why the other options are wrong
- B) The portable, individually owned account is an HSA, not an HRA; an HRA remains tied to the employer and generally does not follow the employee to a new job.
- C) Employee pre-tax payroll funding plus year-end forfeiture describes a health flexible spending account (FSA); HRAs are funded only by the employer and do not work on a use-or-lose basis.
- D) First-dollar coverage restricted behind an HDHP deductible describes the HSA/HDHP pairing; an HRA may reimburse expenses from the first dollar of covered care.
Memory hook
HRA = employer's money, stays behind when you leave; HSA = your money, goes with you.