Understanding Medical Expense Reimbursement Plan (MERP) With DEBS
The United States has one of the highest costs of healthcare as compared to any other country in the world. Taking into consideration the US$ 3.8 trillion that was spent in 2019, the Center for Medicare and Medicaid Services (CMS) has projected that the country’s expenditure on healthcare is likely to exceed US$ 6.2 trillion by 2028 , approximately US$ 18,000 per individual.
As per a study conducted on the rising costs associated with healthcare in the United States, the factors most affecting the increase were found to be the following:
- Growing population
- Aging population
- Higher prevalence/incidence of diseases
- Increased medical services utilization
- Service price and intensity
The spending itself was found to be predominantly on hospital care, physician services, clinical services, prescription drugs, nursing care facilities, home healthcare services, costs associated with insurance, among others. Despite being covered by federal insurance such as Medicare and Medicaid, or other private insurance service providers, both with high costs of premiums, Americans also feel the brunt of several large and out-of-pocket medical expenses.
How can the burden of healthcare costs be reduced?
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.
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:
- The employers first stipulate a maximum amount that they are willing to reimburse the employee for their healthcare on a monthly basis.
- Employees then avail of healthcare services or buy health insurance policies for which they submit the documentation to their employer. This should include details such as the name of the employer, the date of the service/product purchased, and a description of the same.
- The employers review the documentation, and then either pay the healthcare providers directly or reimburse the employees, tax-free, the amounts (up to their allowance amount).
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.
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:
- Stand-alone Plan: 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.
- MERPs with an Individual Plan: 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.
- MERPs with a Group Plan: 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 for Dental and Vision: 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
- 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.
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.
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 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. 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.
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 [email protected]
What does MERP cover?
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.
What is the difference between an HRA and a MERP?
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.
Can employees contribute to a MERP?
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.
How does a Section 105 plan work?
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.