What Is a MERP and How Does It Work?

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.

Related Post: HSA vs HRA vs MERP

How Does a MERP 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.

MERP ClaimLinx

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 the tax deduction only when an employee has a qualified medical expense when they pay part or all of the medical expenses. 

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.

Employer Flexibility in Plan Design

When you take the administration of first-dollar benefits like copays for office and specialist visits away from the insurance company, you don’t have to pay as much for those benefits. The flexibility of MERPs let companies fund their employees’ medical expenses based on the budget and needs. And as a bonus, MERP funds transfer from year to year. So a company can build up funds over time. 

MERP ClaimLinx

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. 

The MERP Process For Employers & Employees

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. 
Learn More About MERPs
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