What is a MERP and How Does It Work?
What a MERP Is
A medical expense reimbursement plan (MERP) utilizes Section 105 of the tax code, a provision that has been included for more than 50 years. A MERP allows business owners to deduct any portion of a medical expense for its employees.
It includes any business with one or more employees, so any sole proprietor is able to take advantage of this code. ClaimLinx can help you find the best way to use a MERP to save money.
How a MERP Works
A MERP is a type of plan that allows employers to provide funds to their employees on a tax-free basis. These funds are paid directly to the provider’s office as a secondary benefit coinciding with their Primary insurance Plan.
Role of the Plan Processor
ClaimLinx specializes in coordinating self-funded Medical Expense Reimbursement Plans (MERPs) from start to finish. First, we offer employer benefits consulting to provide your business with a plan that fits your demographics best. It’s a more comprehensive Health Reimbursement Arrangement (HRA) than you’ve ever seen!
Business owners receive a tax deduction when an employee incurs a qualified medical expense and the employer pays for part or all of that expense.
Types of Expenses Covered
MERPs typically cover a wide range of medical expenses, including doctor’s visits, hospital services, prescription medications, and other healthcare-related costs. However, it is important to note that specific expenses and reimbursement limits may vary depending on the plan design.
Employer Flexibility in Plan Design
By moving first-dollar benefits, such as copays for office and specialist visits, out of the insurance plan, companies can significantly reduce premium costs. A MERP allows employers to fund employee medical expenses based on their specific budget and business needs, with the flexibility to adjust the plan as those needs evolve. Employers can modify their MERP design at any time with a minimum of a 30-day notice to employees Mid-year. Additionally, unused MERP funds roll over year to year, enabling organizations to build reserves over time.
A MERP, of Medical Expense Reimbursement Plan, is an employer-sponsored benefit plan that helps employees cover eligible medical expenses.
It is a type of reimbursement plan that allows employees to receive reimbursement for out-of-pocket medical cost incurred during the plan year.
How Does a MERP Work?
A MERP is a type of plan that allows employers to provide funds to their employees on a tax-free basis. These funds are paid directly to the provider’s office as a secondary benefit coinciding with their Primary insurance Plan.
Normally if a business reduces medical insurance coverage to lower premiums without adding a MERP, the expense shifts from employer to employee. The MERP allows for employees to receive the same coverage while employers save money.
How it works The 5 Steps:
Step 1: Your employer establishes a copay or coinsurance allowance based on the utilization of services or prescription claims processed under the plan. This allowance represents the maximum reimbursable amount; if total medical expenses exceed this limit, the employer is only responsible for reimbursing up to the predefined cap.
Step 2: As the employee, you will be responsible for paying your providers and pharmacies directly for services rendered. The company will then cover eligible costs after your applicable copay or coinsurance, as well as handle the payment of monthly premiums and determine any payroll deductions required for coverage. Healthcare deductions reflect the standard process for your primary insurance coverage.
Step 3: If a claim is not submitted to ClaimLinx for secondary processing, it will be the member’s responsibility to provide the required documentation. This includes an itemized billing statement or invoice, as well as the Explanation of Benefits (EOB) from the insurance carrier following claim processing.
Step 4: Once the documentation is submitted, it will be reviewed by our company to ensure the allowance has not been exceeded, the purchased product or service qualifies for reimbursement under the MERP, and all required information is included. If any information is missing or incomplete, a claims specialist may request additional documentation.
Step 5: Eligible claims will be reimbursed by your employer beyond your cost-sharing responsibility. Our internal team will upload your claims to your member portal for review, generate a digital Explanation of Benefits (EOB) for your account, and ensure that providers are paid the remaining secondary balance owed.
Role of the Plan Administrator
ClaimLinx specializes in coordinating self-funded Medical Expense Reimbursement Plans (MERPs) from start to finish. First, we offer employer benefits consulting to provide your business with a plan that fits your demographics best. It’s a more comprehensive Health Reimbursement Arrangement (HRA) than you’ve ever seen!
Business owners receive a tax deduction when an employee incurs a qualified medical expense and the employer pays for part or all of that expense.
COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.
While ClaimLinx does not handle COBRA, we can provide guidance and send over a respected company to offer these services learn more about ClaimLinx COBRA Resource Guide.
Types of Expenses Covered by MERPs
MERPs typically cover a wide range of medical expenses, including doctor’s visits, hospital services, prescription medications, and other healthcare-related costs. However, it is important to note that specific expenses and reimbursement limits may vary depending on the plan design.
What are the various types of MERPS?
Before this point in the article, we have discussed MERP as an umbrella term for any plan under section 105 that dictates that the employer reimburses 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 look at the various types of MERPs that exist.
The following are a few of the most commonly used variations of MERPs:
Stand-alone MERP
A stand-alone MERP, otherwise known as a stand-alone HRA, refers to any plan that is provided by the employer where they reimburse employees for health insurance policies that have been created for their associates. These MERPs are designed to reimburse individual medical expenses rather than function as traditional group health insurance. This allows employers to provide strong employee benefits while keeping costs manageable and avoiding the administrative complexity of insurance plans.
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 ensure 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 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.
What expenses can a MERP reimburse?
A MERP is a medical expense reimbursement plan that can cover any expense that the IRS considers a qualified medical expense. This includes the premiums for individual health insurance policies. However, businesses have the freedom to restrict the list of reimbursable eligible expenses as per their preference.
Some of the most common reimbursable items include:
- Health insurance premiums
- Dental expenses
- Vision care expenses
- Hospital care
- Prescriptions
- Health plan deductibles
Overall, there are a lot of options out there for health insurance now. That is why you must have someone to help you look at and weigh all the options.
ClaimLinx Navigates MERPs for You
The ClaimLinx Simple Option Solution plan is different for each client. The self-funded plan is customized for each company. ClaimLinx chooses each high-deductible to fit each clients specific needs. It’s a way to provide great benefits without paying high premiums to a health insurance company for services employees are not using.
ClaimLinx offers the ClaimLinx Solution to help lower your health insurance rates. Our experienced health benefits consultants can find you the best possible rates on employer-paid benefits while also educating your workers on how to save money on healthcare costs. Schedule a Meeting or call toll-free 1-800-858-1772 to see what we can do.
