What is MERP?
Medical Expense Reimbursement Plans are covered under Section (“MERP”) 105 c, H of the IRC code. MERP or Medical Expense Reimbursement Plan is defined as an arrangement where the employer pays the medical care provider directly for the medical expenses incurred (pre-qualified expenses), over and above what is covered as a part of the HRA.
The MERP is considered to be a more comprehensive plan as the employer pays directly for the medical services,negating the need for paying upfront and filing for the claims later on. Unlike the HRA,the MERP is considered to be more flexible.Due to this,the main advantage it offers employees/individuals is that the employers can fund several aspects of their employees’ health plan deductibles, coinsurance, or copays, as well as, the cost of other qualified medical expenses on a tax-free basis.
Using the MERP, employers can pay for qualified medical expenses including prescription medicines, annual examinations, psychiatric care, cosmetic dental and vision-related care, substance abuse treatment, and more. Employees can also use the MERP amount to purchase a comprehensive individual health insurance plan.
MERPs are considered to be a form of self-insurance, as the employer and employee can formulate a payment arrangement that is suitable to both parties (can create a model for the contributions by consulting with each other). It also helps the employer to reduce the costs of their group insurance and pay for the employee’s medical expenses directly. With a focus of reducing the cost of premiums, MERPs are usually associated with healthcare plans that have higher deductibles involved.
How Does MERP Work?
The MERP is facilitated in a step-wise process as follows:
In order to ensure maximum compliance with the federal regulations governing the MERP, employers set up an arrangement with a third-party provider to facilitate the MERP.
An employer in Texas is currently paying very high premiums to offer a US$ 1,000 deductible plan to their employees.
After learning about the MERP Plan from the DEBS experts, they decided to buy a $5,000 deductible plan, but still offer the $1,000 to their employees; The employer will be funding the difference between the employee deductible to the purchased plan deductible, $4,000.
Sophie Gonzalez, an employee of the company, has a surgery that costs $5,000. As she is covered under the $5,000 deductible plan, her responsibility towards the payment would be $1,000. On receiving the bill from the insurance company, she sends it to the DEBS representative in her office. Once the claim is processed, she receives a reimbursement of $4,000, as she is responsible for the remaining US$ 1,000. She uses the reimbursement plus her contribution to pay the bill to the healthcare provider.
Why Choose DEBS?
At DEBS, we believe in educating employers and their employees about the benefits that they can reap from their healthcare plans.
We help our clients discover cost-effective health benefit alternatives for their employees and their families with designed competition among the carriers that provide them benefits. How can we help your organization: Here is how:
Plan the benefits that you are looking for and devise a unique plan to suit your unique needs
Implement the plan
Servicing the plan from start to finish
From planning the benefits that the employers would like to enable for their employees, to creating unique plans, implementing a seamless process to keep the MERP running, educating the employees on its benefits, and managing all aspects of the plan, DEBS believes in promoting a healthy employer-employee culture.
We have devised an approach to facilitate the best medical care benefits for the employees in a way that the employers can cover more expenses without the need for complex planning and additional burdens associated with deductibles. For some organizations, this means they can cover more, or even all of the deductible costs without any complex planning. Here is an example of one way that DEBS can help your organization:
- Employee monthly medical premium (PEPM) is US$ 750 and annual medical deductible is US$ 1,500
- The insurance carrier is charging your company US$ 750 PEPM to use the lower deductible plan. However, only 5-7% of enrolled members are actually using the annual medical deductible.
- Post consultation with DEBS, you can switch to another plan with the following features:
- Monthly premium reduces to US$ 450 and annual medical deductible increases to US$ 6,000.
- For you as the employer, this is a direct savings per employee per month of US$ 300.
- You can now fund MERP from the premium savings of a higher deductible plan by using only US$ 83.33 per PEPM.
DEBS has shown you a less expensive waywith the same result to control current costs as well as future increases in the premium amount.
What Are The Types Of MERP?
As the MERP is a flexible plan, it can be used in multiple ways. Following are the most common types of MERPs:
In a stand-alone MERP, the employer facilitates an MERP for the employees in place of a group insurance coverage, and reimburses the employees for their individual health insurance policies.
In this type of MERP, the employers can, based on their discretion and the arrangement with each employee, decide to follow two different options for them. They can reimburse employees for their individual health insurance policies as a stand-alone option or along with the company group insurance. Alternatively, they can also choose to give stand-alone options to some employees while facilitating both options for others.
These group coverage plans are enabled by employers by clubbing the MERP with a high-deductible group insurance plan. The employers will then reimburse the employees any differences that they may incur due to the high deductibles, tax-free. This type of plan is vastly beneficial to the employers as they can self-insure their group insurance plans, giving them big savings.
MERPs and other types usually cover only specific types of health products/services, requiring the employee to purchase expensive insurance plans with high premiums if they want to extend their cover. However, with the MERP plan for dental and vision, employers can facilitate a plan that reimburses employees only for their dental and vision-related medical expenses.
Advantages of the MERP
In order to reduce this burden of high costs of healthcare, American employers are entering into arrangements, over and above the standard insurance coverage that is provided, to assist their employees with their medical expenses.
There are a few different ways in which the employers can assist their employees with their medical expenses. This could be via an HSA, an HRA, or the MERP. In order to understand the differences between an MERP, HRA, and the HSA, here is a quick glimpse of the definitions:
An HSA or a Health Savings Account is a tax-deductible savings account, stipulated only for medical expenses. The contributions made to this account can be from the employee or from the employer.
An HRA or Health Reimbursement Account is an arrangement between the employer and employee, where the former reimburses the latter for specific medical expenses, on completion of a filing process. A well-planned Health Reimbursement Arrangement (HRA) facilitated by your employer can definitely help reduce the cost of overall healthcare spending. However, a shift to a high-deductible health plan or a HDHP increases the cost of healthcare as it imposes additional out-of-pocket expenditure on the individual (deductibles, coinsurance, and copays). While the HRA does play a big role in helping Americans manage their healthcare expenditure, employers and employees alike have found more benefits with the MERP plan instead.
There are several benefits associated with the highly-flexible MERP. They are as follows:
- MERP allows employees to be reimbursed as a tax-deductible expense on the company books.
- Several types of medical expenses that can be reimbursed include out-of-pocket costs for deductibles, copays, prescription drugs, dental, vision, chiropractic, and many therapies.
- Employers can use MERP as a tool to self-insure the deductible on a group medical plan to lower premium costs.
- Coverage of healthcare is much wider – employees can use the allocated amount to either buy a more comprehensive insurance and have their premiums covered or use the amount to fund treatments such as teeth whitening procedures, counselling, non-prescription medications, health club membership, and more.
- Employees can avail of the funds on showing requisite documentation, without having to file a claims form. Alternatively, the employers may also pay for the medical services directly.
- Employers can change or add on to the plan with ease, as the MERP administration is done by a third-party provider.
- Employees can also contribute to the MERP to gain even more flexibility.
MERP Case Study
Value Added Benefits Options
- Employee Monthly Medical Premium is $750
- Annual Medical Deductible is $1,500
DEBS can show you a less expensive way with same result to con-trol current cost & future increases in Premium $$$
The insurance carrier is charging your company $750 PEPM to use the lower Deductible Plan
But only 5-7% of enrolled members are actually using the annual medical deductible.
THIS IS A BETTER WAY!
Employer funds MERP from premium savings of higher deductible plan only using
$83.33 PEPM.
Medical Expense Reimbursement Plans
This funding is used to offset high deductible programs by saving the difference betweenLow Deductible Higher premium vs. High Deductible Lower premium
Less than 7% of Americans use their deductible
*Low Deductible-Pay Carrier or High Deductible-Shared Responsibility
2021 ACA Plans/MERP-HRA Funding
100 employee case
Educating The Employees
About The MERP
After the employer decides on a specific design for the MERP for the employee(s), it is crucial to make the employee understand the benefits that he/she can now avail under the MERP. The most important aspects that the employee needs to understand are as follows:
- What does the MERP cover?
- How much is the amount that he/she can receive under the MERP?
- What gaps in the group health plan will the MERP cover?
- What is the requisite documentation for the MERP?
- How does the actual reimbursement process work?
As the MERP exists in conjunction with the group health insurance and individual health plans (purchased by the employees), it is crucial that the employer takes the responsibility of educating the employees on how the MERP works. While the MERP is discussed at length after onboarding the employee and through periodic group meetings after that, the third-party provider who takes care of administering the MERP will also act as a one-point contact to answer all and any questions that the employee may have at any point in time.
For more information on our unique approach which allows pooling of deductible payments to keep more money in your pocket, and reduces the overall burden associated with health insurance deductibles, visit https://debsinsurance.com/. Contact us at 210-558-3377 or send us an email at svcrep9@debsinsurance.com.
Frequently Asked Questions
MERP enables employees to buy individual health insurance policies or buy healthcare services/products, for which they are reimbursed by their employer (up to a pre-decided amount for pre-qualified services/products). Employers can pay for a portion of or for the entire cost of their employees’ health plan deductibles, co-pays, and coinsurance, as well as other qualified medical expenses on a tax-free basis.
An HRA or Health Reimbursement Account is an arrangement between the employer and employee, where the former reimburses the latter for specific medical expenses, on completion of a filing process. A well-planned Health Reimbursement Arrangement (HRA) facilitated by your employer can definitely help reduce the cost of overall healthcare spending. It only covers the cost of deductibles and coinsurance.
An MERP, on the other hand, is more flexible. Employers and employees can create multiple member plan designs with multiple benefits, with the employee being directly reimbursed, tax-free, for all expenses (up to a pre-decided amount for pre-qualified services/products). While the benefits for the employees are diverse, the employer also benefits from a lower cost of group health insurance. Employers can also buy one single MERP plan and create multiple funding arrangements and benefits designs. They can also assign different levels of contribution for each employee.
Employees can also contribute to the MERP to gain even more flexibility. Premium equivalent rates are usually considered to decide on the minimum and maximum limits of the employee contributions.
A Section 105 plan is an IRS-regulated health benefit. It allows for the tax-free reimbursement of medical and insurance expenses, as described under Section 105 of the Internal Revenue Code (IRC). These plans can be designed to benefit the employees and employers in multiple ways. It can be used to pay for qualified health expenses, cover the cost of insurance premiums (up to a qualified amount), and it can be offered alongside a group health plan to reduce the cost on the employer. It also offers tax-free benefits to the employer. Employers can also opt for different types of plans based on a consultation with the employee and the benefits that the plan gives.