A health reimbursement arrangement (HRA) is funded by:

Why A is correct

A health reimbursement arrangement is an employer-funded account used to reimburse employees for qualified medical expenses, including deductibles, copayments, and coinsurance. Employees do not contribute to an HRA through salary reductions; the employer makes all contributions. Unused HRA funds generally may carry over at the employer's discretion, and the amounts are not taxable to the employee when used for qualified expenses. This distinguishes HRAs from FSAs and HSAs, which involve employee contributions, and is covered under the consumer-driven health plan (CDHP) material in AH-III.A.1b.

Why the other options are wrong

• B) Salary-reduction funding describes a flexible spending account (FSA), not an HRA, which is employer-funded.
• C) Employees make no contributions to an HRA, so equal cost-sharing between employer and employee is incorrect.
• D) HRAs are funded by the employer, not by any government premium subsidy program.

Memory hook

HRA = employer money only. If the employee funds it, it is not an HRA.

Why A is correct

An HRA is a consumer-directed health arrangement funded exclusively by the employer. The employer owns the funds and decides the annual reimbursement amount available; employees cannot contribute, and money they do not use generally remains with the employer rather than rolling over for the employee's benefit. When the employee leaves, the HRA balance does not follow the employee the way an HSA does, because the HRA is employer-owned. Since it is an employer-sponsored account, an individual cannot open an HRA independently. This funding and ownership structure is the core distinction tested among the CDHP account types.

Why the other options are wrong

• B) Portability and individual ownership describe an HSA, not an HRA; HRA funds generally stay with the employer when employment ends.
• C) An HRA is offered through an employer plan; an individual cannot establish one independently without an employer sponsor.
• D) HRAs are funded by the employer and used to reimburse qualified medical expenses; they are not employee-funded checking accounts.

Memory hook

HRA = the employer's piggy bank: they fund it, they own it, and what you do not spend goes back to them.

Why A is correct

An HRA is an employer-funded account used to reimburse covered medical expenses. The employer owns the account, contributions are not taxable income to the employee, and unspent funds generally carry over from year to year. HRAs are one of the consumer-driven health plan (CDHP) arrangements, along with MSAs, HDHPs paired with HSAs, and FSAs, that the California A&H objectives cover as alternatives to traditional copay-based plans.

Why the other options are wrong

• B) An employee-funded account with use-it-or-lose-it rules describes a flexible spending arrangement (FSA), not an HRA; HRAs are funded by the employer and may carry unused balances forward.
• C) HRAs are private employer arrangements, not government accounts, and they are not used to pay Medicare premiums.
• D) While an HRA can be paired with a high-deductible plan, it is not conditioned on HDHP enrollment the way an HSA eligibility is.

Memory hook

HRA = the employer's money reimbursing your medical bills, and leftover funds roll over. Employer-funded, not use-it-or-lose-it.

Why C is correct

A health reimbursement arrangement (HRA) is funded solely by employer contributions; employees cannot contribute. The employer reimburses employees tax-free for qualified medical expenses up to the plan limit, and amounts the employee does not use typically revert to the employer when the employee terminates. Unlike an FSA, an HRA is not subject to the use-or-lose rule, and unlike an HSA it is owned by the employer and not portable with the employee.

Why the other options are wrong

• A) An HSA is owned by the employee, is portable, and allows both employer and employee contributions, so it does not revert to the employer.
• B) An FSA can receive employee salary-reduction contributions and follows the use-or-lose rule; it is not exclusively employer-funded.
• D) An Archer MSA is tied to self-employed individuals or small employers paired with a high-deductible plan and has its own eligibility limits.

Memory hook

HRA = employer's money, employer's account. Leave the job, and the leftover reimbursement reverts to the employer.