Which statement correctly describes a health reimbursement arrangement (HRA)?

Why A is correct

A health reimbursement arrangement (HRA) is an employer-funded account used to reimburse employees for qualified medical expenses. Because the money comes from the employer, the HRA belongs to the employer: unused balances generally revert to the employer at the end of the plan year or when the employee leaves the job, and the account is not portable. This is the fundamental contrast with an HSA, which is owned by the individual and travels with the employee. The exam pairs HRA with HSA and FSA as consumer-directed health plan (CDHP) accounts.

Why the other options are wrong

• B) Ownership and portability describe the HSA, not the HRA; HRA funds belong to the employer and are left behind when employment ends.
• C) The HSA must be paired with a qualifying high-deductible health plan; an HRA has no such pairing requirement and is funded by the employer, not employee payroll deductions.
• D) Unused HRA funds revert to the employer, not to the IRS; the employer retains the money, not the government.

Memory hook

HRA = employer's money, employer's rules. Leave the job, leave the balance behind.

Why A is correct

An HRA is a consumer-directed health arrangement funded solely by the employer, not by employee salary reduction. The employer owns the account and reimburses employees for qualified out-of-pocket medical expenses they incur, so the employee's only out-of-pocket risk is the actual cost of care. Because ownership rests with the employer, unused balances generally do not follow the employee to a new job and the employer can set the plan's carryover rules. Unlike an FSA, an HRA is not tied to a use-it-or-lose-it year-end deadline, and unlike an HSA it is not individually owned, portable, or subject to contribution limits set by the employee. The ownership distinction is the testable core of the HRA.

Why the other options are wrong

• B) Portability and individual ownership describe an HSA, not an HRA; HRA balances stay with the employer that funded the account and are generally lost on separation from service, so this answer describes the wrong product.
• C) Use-it-or-lose-it year-end forfeiture is the FSA rule; HRAs generally allow balances to remain available to the employee under the employer's plan design, so this answer transplants a different product's rule onto the HRA.
• D) HRAs are funded exclusively by employer contributions; employee paycheck contributions are the FSA or HSA funding pattern, so this answer inverts who actually funds the arrangement.

Memory hook

HRA = HR-money only. The employer funds it, the employer owns it, and leaving the job leaves the money behind.