Which statement correctly describes a Health Reimbursement Arrangement (HRA)?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
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.