Advantages of Having a Self-Funded MERP
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 employer of the organization having the discretion to organize a plan around the products or services employees need, It’s about having a truly custom health plan, where employers reimburse providers or employees for services up to the allowance they have been given.
Know the difference between HSA vs HRA vs MERP
Increasing costs can often inspire creativity among business owners. Many are now reassessing not only where they buy their health insurance from, but also how they buy it. It is important, however, to carefully consider the pros and cons of the different solutions available.
What is an HSA (Health Saving Account)?
An HSA is a type of savings account that allows employers and/or employees to set aside money before taxes to pay for qualified medical expenses. By using tax-free dollars from your HSA to pay for deductibles, copayments, coinsurance, and other expenses, you may reduce your out-of-pocket healthcare costs. However, it is important to note that you cannot use HSA funds to pay for insurance premiums.
You can use the money from your Health Savings Account (HSA) to pay for qualified medical expenses when needed. However, you can only contribute to an HSA if you have a High Deductible Health Plan (HDHP). This type of health plan, which can include a Marketplace plan, provides coverage for preventive services even before you reach the deductible.
How can a high deductible plan lower costs?
Enrolling in a high deductible plan can result in a lower monthly premium. This means that a person will have to pay more for healthcare services and items before the insurance plan begins covering the costs. However, if you have an HSA-eligible plan and an HSA, you can use your tax-free HSA savings to cover the deductible and other qualified medical expenses such as copayments and coinsurance.
- If you have an HSA-eligible plan and do not need many healthcare items and services, you may benefit from the lower monthly premium.
- Your HSA balance rolls over year to year, so you can build up reserves to pay for healthcare items and services you need later.
You can use the money from your Health Savings Account (HSA) to pay for qualified medical expenses when needed. However, you can only contribute to an HSA if you have a High Deductible Health Plan (HDHP). This type of health plan, which can include a Marketplace plan, provides coverage for preventive services even before you reach the deductible.
What is considered an HSA-eligible plan?
HSA-eligible plans have a set minimum deductible and a limit, or maximum, on out-of-pocket costs for both individuals and families.
- The minimum deductible is the amount you pay for health care items and services per year before your plan starts to pay.
- The maximum out-of-pocket costs are the most a person will pay per year.
It’s always a good option for those who want to keep premiums low. However, it may mean paying for medical costs upfront in general.
What is an HRA (Health Reimbursement Arrangement or Account)?
An employer can provide a plan that reimburses employees for medical expenses that are not covered by the company’s standard insurance plan. This is an excellent option for companies that want to keep premium costs low and want to assist employees in covering medical costs before or after insurance.
How does a Health reimbursement account work?
Your employer owns the HRA and sets it up for you. It is a different arrangement than a flexible spending account or health savings account when you contribute money.
- Your employer sets the rules and decides the amount. You are not allowed to make contributions to your HRA.
- Employers use HRAs to cover out-of-pocket medical and pharmacy expenses, including deductibles and co-insurance.
- Your reimbursement for eligible medical expenses is not considered taxable income. You usually receive the full amount and do not have to pay federal or state income taxes on the money.
- An employer can allow unused HRA funds to roll over from year to year, but it is not required. If you leave your employer with unused funds, they may keep the money.
What can you use your HRA funds toward?
The IRS determines what is considered a qualifying medical expense. Your employer will define what is eligible for you based on your plan. If you want to be reimbursed for any qualified expenses, you or your eligible family members must purchase items or services during your HRA plan’s coverage period.
Here are some examples of the types of expenses you may be able to get reimbursed with an HRA:
- Some insurance premiums
- Health insurance deductibles, coinsurance, and copays
- Medical, vision, and dental expenses
- Pharmacy expenses
What is a MERP (Medical Expense Reimbursement Plan)?
A Medical Expense Reimbursement Plan (MERP) is a benefit plan sponsored by an employer to help employees cover their eligible medical expenses. This type of reimbursement plan allows employees to receive reimbursement for their out-of-pocket medical costs that they incurred during the plan year.
You can offer a medical expense reimbursement plan alongside or instead of a group health insurance plan for primary health benefits.
Employers can customize the MERP to their needs by setting contribution amounts, eligible expenses, and reimbursement processes.
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.
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.
