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, including deductibles, coinsurance, and copayments. Because the employer contributes all funds, employees do not own the account; unused balances generally roll over from year to year at the employer's option, and the money does not follow the employee to a new job. This distinguishes the HRA from both the FSA, where unused pre-tax funds are typically forfeited, and the HSA, which is individually owned and portable. The HRA is one of the account-based consumer-driven health plan models listed under individual medical insurance in the outline.

Why the other options are wrong

• B) Employee pre-tax salary reductions fund FSAs, not HRAs, which are employer-funded.
• C) HRA balances are not owned by or portable with the employee; HSAs are the portable account.
• D) HRAs generally permit rollover of unused balances, unlike the use-it-or-lose-it FSA rule.

Memory hook

HRA = employer's money that rolls over year to year but stays behind when you leave.

Why D is correct

A Health Reimbursement Arrangement (HRA) is funded solely by the employer, never by employee contributions. Unused balances roll over from year to year and can be used to reimburse the employee for qualified medical expenses, including premiums in some arrangements. The HRA is owned by the employer, so an employee generally forfeits any remaining balance when leaving the job. Unlike an HSA, an HRA does not require pairing with a high-deductible health plan and is not portable with the employee.

Why the other options are wrong

• A) A use-it-or-lose-it account funded with salary deferrals describes a health Flexible Spending Account (FSA), not an HRA, which is employer-funded and rolls over.
• B) A portable account owned by the employee describes an HSA; an HRA belongs to the employer and is not portable.
• C) Mandatory pairing with a high-deductible health plan is the rule for an HSA, not an HRA.

Memory hook

HRA = the employer's money that rolls forever. FSA = your money that expires. HSA = your money that travels.

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.