Massachusetts Health & Accident Insurance Practice Exam

Which of the following is true about a Health Reimbursement Arrangement (HRA)?

1. Employees must contribute to the account

2. It is established and funded by the employer

3. It has a fixed amount employees can withdraw annually

4. It is a type of individual retirement account

The correct answer is: It is established and funded by the employer

A Health Reimbursement Arrangement (HRA) is indeed established and funded entirely by the employer, which is the key distinguishing feature that makes this answer correct. In an HRA, the employer allocates a specific amount of money for each employee to cover eligible medical expenses. Employees do not own the account; instead, the funds are set up to reimburse them for out-of-pocket healthcare expenses, such as deductibles or co-pays. This structure ensures that the employer retains control over the funding, enabling them to manage costs associated with employee healthcare reimbursements effectively. It's important to note that contributions from employees are not required, which is a significant aspect of HRAs that differentiates them from other types of accounts or plans where employee contributions are necessary. Consequently, the arrangement primarily benefits employees through reimbursement, while the employer manages and funds the plan. The other options do not accurately describe the nature of an HRA: employees are not required to contribute, there is no predetermined fixed amount that employees can withdraw (as reimbursements depend on qualified expenses), and HRAs are not retirement accounts but rather health-related reimbursements.