Medical Expense Reimbursement Plan
A Medical Expense Reimbursement Plan (MERP) is a specialized type of Health Reimbursement Arrangement (HRA) governed by Section 105 of the IRS code. While the terms are often used interchangeably, a MERP is specifically designed to help employers “wrap” additional coverage around an existing group health insurance policy.
How a MERP Works
Traditionally, a MERP is used as a gap-filling strategy. An employer might choose a lower-cost, high-deductible health plan (HDHP) for the company, and then use a MERP to reimburse employees for specific out-of-pocket expenses—like deductibles or co-insurance—that the primary plan doesn’t cover.
What is a MERP?
Key Features:
- Employer-funded: A MERP is almost always integrated with a high deductible primary group insurance policy or stop-loss coverage. The Employer-provided MERP funds are used by the employee to pay for very specific expenses.
- Targeted Reimbursement: It is often restricted to specific medical categories (e.g., only hospital stays or only deductible costs) rather than a general health stipend. You can think of it as a targeted, specific, Group Coverage HRA.
- Customizable: Employers have flexibility in determining the types of expenses covered and how much is reimbursed annually.
- No Impact on Employees’ Taxable Income: Employees do not pay taxes on the money they receive through the MERP for eligible medical expenses.
Note For Brokers and Consultants
While we are experts in plan design for Group Coverage HRAs and other modern HRAs like QSEHRAs and ICHRAs, we do not currently provide plan design services for MERPs. if you have an existing MERP in place and are looking for an administrator, please contact EMPOWER.
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How it works for Your Employees
When you offer a MERP, employees can submit claims for reimbursement for out-of-pocket medical expenses that are not covered by your company’s primary health insurance plan.
The MERP can cover a wide range of healthcare costs, depending on how the plan is structured.
Employer Contributions
Eligible Expenses
Accessing Funds
Eligible Expenses
Some examples of eligible expenses include:
Medical Expenses
- Deductibles, copayments, and coinsurance
- Prescription medications and certain over-the-counter drugs
- Doctor visits, hospital stays, and surgeries
- Preventive care, such as immunizations and screenings
Dental and Vision Expenses
- Routine dental checkups, fillings, and orthodontics
- Vision care, including eye exams, glasses, and contacts
Other Qualified Healthcare Costs
- Chiropractic services, mental health counseling, and physical therapy
- Medical supplies, such as bandages, crutches, and glucose monitors
Advantages of a MERP
Employers
- A MERP is an Employer-funded account that helps ease the burden of higher employee healthcare costs.
- The Employer decides how much, if any, employees may roll over each year.
- The Employer may vary the MERP contributions based on level of insurance coverage.
Participants
- MERP funds are tax-free to employees.
How it Works
For Employers
The Employer hosts Open Enrollment with employees and enrolls Group Health Plan enrollees in the MERP.
HRA funds may be available to employees on the first day of the Plan Year, depending on how the Plan is structured.
EMPOWER administers the Plan and issues reimbursements to employees after claims are filed. MERP reimbursements are made from an Employer-owned account.
For Participants
Employees are automatically enrolled in the MERP when they enroll in the Group Health Plan.
Participants use their insurance or pay out of pocket for eligible expenses.
Participants file claims to EMPOWER with the insurer’s benefits summary sheet or explanation of benefits. EMPOWER reimburses claims conveniently from the Employer’s bank account.
Tailored an HRA to Meet Your Needs
Employers can customize their plans through many options, including:
Deductible
Choose the deductible amount (amount the participant pays before the MERP pays) for single and family coverage.
Choose whether the MERP pays out to an individual who has met the single deductible prior to the family reaching their deductible.
Coinsurance
Choose whether the MERP pays at 100% or a different amount after the deductible is met.
Copayment
Choose how the MERP handles copayments.
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