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, employer-owned account that reimburses employees for qualified medical expenses, including deductibles, copays, and other eligible out-of-pocket costs. Only the employer may contribute, and because the employer owns the arrangement, any unused balance generally remains with or reverts to the employer, for example when the employee leaves the job. Unlike an HSA, the HRA is not individually owned and is not portable to another employer. Unlike an FSA, the HRA is not funded through employee salary reductions, so there is no employee money to forfeit under a use-it-or-lose-it rule.
Why the other options are wrong
- B) Employee pre-tax payroll funding with individual ownership describes an FSA or an HSA. An HRA is funded exclusively by the employer and belongs to the employer, not to the employee.
- C) Use-it-or-lose-it forfeiture is the general rule for a healthcare FSA, not an HRA. HRA balances may carry over from year to year by plan design and are not automatically forfeited at year-end.
- D) The requirement to be paired with a qualifying high-deductible plan applies to an HSA. An HRA can be offered alongside various medical plan designs, not only high-deductible coverage.
Memory hook
HRA = HR's money, employer's money. HSA = your money, follows you. FSA = spend it or lose it.