Updated October 30, 2020:

Medical Reimbursement Plan: Everything You Need to Know

A Medical Reimbursement Plan, also known as a Medical Expense Reimbursement Plan or “MERP,” is substantially similar to a Health Reimbursement Arrangement or “HRA.” In fact, they are basically synonyms, with an HRA just being the more common phrase to use. However, unlike HRAs, there is no physical account linked to a MERP. Rather, the business will reimburse the employee for any health expenses after medical service has been completed. With various new benefit plans now available to health care providers, many businesses are quite interested in MERPs.

A Medical Expense Reimbursement Plan is just a way for employers to give their employees tax-free money that can be used only to pay medical expenses. Some details of this type of plan include:

  • Employees pay for their own doctor visits and medicine, and then the employer reimburses them.
  • Employers can contribute exactly the amount they want so the cost of a Medical Expense Reimbursement Plan doesn't increase from year to year.
  • Medical Expense Reimbursement Plans are incredibly flexible so it's difficult to say exactly how they should be used.

A Medical Expense Reimbursement Plan allows businesses to pay for part of their employees’ deductibles, copays, or co-insurance and any other qualified medical expense, tax-free. These plans are incredibly flexible and allow the business to come up with any sort of suitable arrangement. As a result, Medical Expense Reimbursement Plans are often associated with health care plans with higher deductibles. This will save the business and its employees on the amount of premiums while also continuing to offer a good quality health plan to the employee.

When deciding whether to opt for the Medical Expense Reimbursement Plan, the business will usually save a lot during the first year with the goal of stabilizing that amount in future years.

Advantages of a Medical Expense Reimbursement Plan (MERP)

There has been an enormous increase in the costs of health care in recent years. The category of people affected most by this increase is small businesses. It is very hard for a small business owner to cover his or her own costs of health care, let alone the health care costs for all of their employees.

Medical Expense Reimbursement Plans are appealing to small business owners because they are tax-exempt. Reimbursements are tax exempt, and any employer contributions are tax-deductible business expenses. Once the employer reimburses the employee, the claim can be filed.

Medical Expense Reimbursement Plans are also incredibly flexible in that the business can create any type of scheme it wants. The business owner is able to decide how much money will be available and how much of it will be disbursed to employees, as opposed to having a health insurance company dictate what the business can and can’t do.

MERPS With Group Insurance

A Medical Expense Reimbursement Plan with Group Insurance allows employers to self-insure a portion of their group insurance plan using pre-tax dollars which leads to big savings without any change in coverage. Employers can raise the deductible on the group plan and reimburse employees for the difference in the deductible.

MERPS for Vision or Dental

A Medical Expense Reimbursement Plan allows employers to reimburse only certain types of expenses. If an employer wants to offer a vision or dental plan without buying expensive insurance, they can offer a Medical Expense Reimbursement Plan to their employees that reimburse only for vision or dental expenses. Medical Expense Reimbursement Plans for vision or dental allow the employees to know that they're covered for basic expenses without costing the company large amounts of money on insurance premiums.

MERPS as Stand-Alone Health Benefits Plans

A lot of people have negative opinions about individual insurance, but those are generally based on misconceptions or horror stories from a decade ago. Consider getting an agent who is knowledgeable to help you understand how a Medical Expense Reimbursement Plan or HRA works.

Money from a Medical Expense Reimbursement Plan can be used to pay for individual insurance premiums. Employers can offer only the Medical Expense Reimbursement Plan, and employees can use that money to buy their own individual policies rather than offering a group plan and a Medical Expense Reimbursement Plan. A Medical Expense Reimbursement Plan is fully deductible for the company.

Many companies use a Medical Expense Reimbursement Plan to cover ancillary health care services, such as vision or dental insurance, that is not usually covered by a group health care plan.

A Medical Expense Reimbursement Plan differs from a Flexible Spending Account in that funds aren’t set aside beforehand. There is no maximum or minimum amount by law, and with a Flexible Spending Account, you pay funds to an account and have to use these funds by the end of the year, otherwise the money disappears.

If you need help with your Medical Reimbursement Plan, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.