Which statement about Health Reimbursement Arrangements (HRA) is correct?

The correct answer states that reimbursements may be tax-free if the employee paid. Health Reimbursement Arrangements (HRAs) are designed to provide employees with a tax-advantaged way to reimburse out-of-pocket medical expenses. When an employer contributes to an HRA and the employee later uses those funds to reimburse qualified medical expenses, those reimbursements are typically tax-free, provided the expenses were incurred for eligible health care services.

This tax-free treatment is a key feature of HRAs, allowing employees to recover costs without suffering tax implications. It is important for employees to understand which expenses qualify for this tax-free reimbursement to maximize the benefits of their HRA.

Other options do not accurately reflect the nature of HRAs. For instance, HRAs do not restrict funds to non-medical expenses; rather, they are specifically meant for medical-related costs. Additionally, employers can and usually do contribute to HRAs as a means of providing financial support for employee health care costs. Not all reimbursements are taxable since only certain non-qualified expenses may incur taxes, making the understanding of HRAs and their functions crucial for managing health care costs efficiently.