self-funded-merp

Advantages of Having a Self-Funded MERP

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:

Stand-alone MERP

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.

How Much Does Group Health Insurance Cost?

The decision to offer group health insurance benefits to your employees starts with questions about the overall cost. After all, you need to remain profitable, and paying for medical coverage can certainly cut into your bottom line. However, with the numerous benefits of offering health insurance and the possibility of current government regulations forcing you to do so, it makes sense to explore all your options and find out how you can provide the highest quality insurance at the lowest price possible.

 

When the figuring out how much does group health insurance cost, you need to gather a lot of information before coming up with a final dollar amount. In general, both the employer and the employees share costs for all doctor’s visits, prescriptions, hospital stays, and any other necessary medical care.

 

Employees must pay the following for health insurance benefits:

 

  • Deductible – Money paid before the insurance policy starts paying
  • Copayment – Payments made directly to the medical service provider
  • Coinsurance – Percentage of all bills the insurance does not pay

 

If you represent a company interested in offering the best health insurance benefits to employees, it makes sense to minimize all three of these payments as much as possible. However, you cannot amply take on 100% of all medical bill responsibilities. Consider working with an employer benefit consultant to learn about all your options for overall savings.

 

Costs of Group Health Insurance for Employers

 

According to a survey conducted by the nonprofit National Business Group on Health in 2020, the average expenditure for employees is approximately $15,000 annually. For many workers, this is a considerable amount of money that would stretch their budget and uncomfortable amount. In order to minimize these expenses, the employer themselves can make smarter choices about the policies and packages they provide.

 

Some Options for Minimizing Insurance Expenses

 

Far too many businesses look to eradicate benefits in an attempt to save money. This backfires with employee dissatisfaction, retention issues, lack of value for jobseekers, and an overall hit to morale that can affect productivity and profitability.

 

Employers can save their workers money on health coverage with the following:

 

Health Savings Accounts

 

Individuals who put money aside in a tax-free account specifically designated for medical expenses can save money in the long run in conjunction with healthcare benefits that involve high deductibles. Your business saves money by not paying out earlier, and the employee can save money on their taxes and ensure they have enough cash on hand to cover bills.

 

Optional Supplemental Insurance

 

Supplemental insurance policies add options for employees who want to avail themselves of extra coverage. This may keep your expenses down to begin with as you do not have to pay the maximum for every worker in a shared cost plan.

 

Medical Expense Reimbursement Plans

 

Combined with a high deductible group health insurance policy, a self-funded MERP can bridge the gap between what the employer and employee have to pay. This works well because workers do not have to sacrifice coverage while saving money.

 

Many options exist for overall savings when it comes to offering health insurance policies to employees. Working with ClaimLinx and a professional consulting team who has a strong track record of success can help you reap all the benefits of an affordable plan and employee policy management.