As a result of millions of people all around the world losing their jobs and subsequently their insurance due to the current public health crisis caused by COVID-19, which is also the case in the US, an alternative of health insurance that has come to the forefront is what is known as Medical Expense Reimbursement Plans or more easily referred to as MERP.
Predominantly, MERP has become very popular amongst employers lately. This is mainly because with MERP, organizations have the leeway to provide tax-free money, as opposed to providing conventional benefits such as group insurance. This entails the employees of the organization having the discretion to buy whatever product or service pertaining to health care as they prefer, which may also include health insurance for themselves. The employer, then, is responsible to reimburse their employees up to the allowance they have been given.
To help you grasp the concept of what MERP exactly is, how they work, and what are the advantages associated with them, this article contains a breakdown of all the necessary details.
Shall we begin?
What exactly is a MERP?
To start off, the term MERP stands for Medical Expense Reimbursement Plan. This is any sort of insurance plan that requires businesses and employers to reimburse their employees for the medical expenses that they or a dependant of their paid for out of their own pocket. When executed properly, a MERP will allow employees to be reimbursed for the entire medical expense, entirely free of any taxes.
How do MERPs Work?
A MERP is any plan that allows businesses to give their employees without any taxes applied to the amount. The money that is given by the employer can only be used to pay off any medical expenses that an employee paid for out of their own pockets. The process of a MERP typically involves five main steps:
Step 1: Your employer will determine the allowance amounts- this means the set amount of monthly allowance that is allowed for each employee; should the medical expenses of an employee exceed the allowance limit, the employer will only be liable to reimburse the employee for the allowance that was predetermined.
Step 2: As the employee, you will have to purchase your own health insurance plan- meaning you will have the discretion to choose whatever health care products best serve your needs and requirements. This purchase, however, will be paid for from your own pocket for the time being.
Step 3: You will be required to provide proof of purchase- once you have made the purchase for your preferred health care products, you will be asked to provide documentation recording that a medical expense was incurrent. This document could be anything from a receipt to an explanation of benefits. However, regardless of the type of document, there should be three key pieces of information present in the document, including the date of the purchase, a description of the health care product or service that was purchased, and your name.
Step 4: Once the document has been submitted, it will be put under review by your employer- this is done so that the employers can make sure that the amount of allowance is not exceeded, the type of product or service purchase qualifies to be reimbursed for under MERP and that all the important information is present. If the documentation is missing anything, you may be asked to submit additional records.
Step 5: You will be reimbursed by your Employer- after reviewing to make sure all information is present and valid and everything else is in, your employer will pay you up to the amount that was required by your predetermined allowance.
What are the various types of MERPs?
Before this point in the article, we have discussed a MERP as an umbrella term for any plan under section 105 that dictates that the employer reimburse their employees for the medical expenses paid for out of their own pockets. In this following section, we will take a deeper dive into MERP and take a look at the various types of MERPs that exist out there.
The following are a few of the most commonly used variations of MERPs:
A stand-alone MERP, otherwise also known as a stand-alone HRA, refers to any plan that is provided for by the employer where they reimburse employees for health insurance policies that have been purchase for their individual selves. These are MERPs that only cover personal medical expenses as opposed to group health insurance. This way, employers can offer their employees amazing benefits without having to raise their own costs and dealing with the intricacies of insurance.
A MERP that covers group health insurance
This type of MERP that is coupled with a group plan is also referred to as group coverage HRAs, Deductible HRAs, or Group HRA. This is where employers bundle a MERP with group health plans that typically come with high deductibles. In this variation of MERP, the employer will increase the deductible to an even higher amount on the group health plan. Then, you as the employee will be paid in the difference between the deductible and your allowance. This provides an effective avenue for employers to insure a part of their group plan through dollars before the taxes on them are paid, which allows for huge savings without compromise on the coverage being provided.
MERPs that exclusively cover Vision and Dental expenses
Even in the case of MERPs, there are only certain types of medical expenses that qualify the employee to receive reimbursement. This type of MERP comes in handy if your employer wants to cover you for your vision and dental expenses without having to purchase expensive insurance plans.
The Advantages of Self-Funded MERPs
Employees get choice and flexibility
With MERPs, employees have the discretion to choose whatever health care products meet their needs the best so that the plans can be tailored to requirements and no coverage goes unused.
The company stands to gain financial benefits
Unlike in the case of fully-funded insurance plans where the employer will have to pay the entire premium, in MERPs, they are only required to pay for the expenses that were incurred without incurring any sunk costs.
Employees make better health care decisions
When employees are required to pay for their medical expenses out of their own pockets initially, and they are restricted to a set amount of allowance, they are better prone to learning how to make better and more informed decisions about their health and the health products they purchase.
While it may not be my option of choice, I can see why a self-funded MERP is seen as the favorite by many people. When it comes to one’s personal funds, especially in the long term, flexibility is such a commodity.