Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Health InsuranceMedium
A small business owner is considering establishing a plan that allows employees to pay for certain medical expenses with pre-tax dollars, but it must be funded solely by employer contributions. Which type of plan is this?
- AHealth Reimbursement Arrangement (HRA)
- BSection 125 Cafeteria Plan
- CFlexible Spending Account (FSA)
- DHealth Savings Account (HSA)
Show answer & explanationAnswer & explanation
Correct answer: A. Health Reimbursement Arrangement (HRA)
A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for out-of-pocket medical expenses and sometimes premiums. It is solely funded by the employer, and contributions are tax-deductible for the employer and tax-free for the employee.
Why the other options are wrong
- B. A Section 125 plan is the overarching plan that allows pre-tax benefits, but HRA is the specific type described.
- C. FSAs can be funded by employees through salary reduction, not solely employer.
- D. HSAs require a high-deductible health plan and can be funded by both employer and employee.
Health Reimbursement Arrangement (HRA)
An employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses and sometimes health insurance premiums.
- Solely funded by the employer.
- Contributions are tax-deductible for the employer.
- Reimbursements are tax-free for the employee.
- Funds may or may not roll over to the next year, depending on the plan.
Memory trick: Employer plans: Who funds it, and how does it flex?