Which statement correctly describes a Health Reimbursement Arrangement (HRA)?
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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 used to reimburse employees for qualified medical expenses. The employer makes all contributions; employees do not contribute through salary deferral, and the employer owns the account. Unused balances generally roll over and remain available in later years, which is one reason HRAs are valued for long-term health planning. Because it is employer-owned, an HRA is not portable: an employee who leaves the job ordinarily loses access to the remaining balance. Reimbursements from an HRA are tax-free to the employee when they pay qualified medical expenses, consistent with IRC Sections 105 and 106.
Why the other options are wrong
- B) Employee pre-tax salary deferrals fund a flexible spending account (FSA), not an HRA; an HRA is funded solely by the employer.
- C) HRAs are employer-owned and generally not portable; it is an HSA that is owned by the individual and follows the account holder.
- D) Only an HSA must be paired with a high-deductible health plan; an HRA can be offered alongside any eligible plan.
Memory hook
HRA = the employer's money, employer's account, rolls over year to year, does not travel with the worker.