MERPs: How do Medical Expense Reimbursement Plans work?


If your current medical plan is costing your company a lot of money. And you want to have more control over how much they’re spending on healthcare for themselves or their employees compared to what’s typically offered by most group health insurance plans. There are many different options for Medical Expense Reimbursement Plans (MERPs)


With a MERPs: How do Medical Expense Reimbursement Plans work? Medical Expense Reimbursement Plan (MERP), organizations typically offer tax-free allowances instead of traditional benefits like group coverage. But some companies choose to combine this with existing policies. There are also HRA variants that can work alongside other plans if necessary as well!. Employers may offer a variety of benefit choices for employees, such as health insurance, help with utility bills, and an education allowance.

In this post, we’ll explore MERPs and some factors to consider when comparing plans.

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What is a MERP?

A Medical Expense Reimbursement Plan (MERP) is just what it sounds like—a method where an organization reimburses employees for out-of-pocket medical expenses incurred by the employee or their dependents. A well-administered MERP will reimburse 100% of all tax-free money back to the employee.

MERPs are not a section 125 plan, cafeteria plan, or flexible spending account. They are designed to be more like an HRA and cost less than the other plans.

Section 105 – Internal Revenue Service

Section 105 - Internal Revenue Service

How do MERPs work?

A MERP will provide a tax-free source of income for employees that they can only spend on qualified medical expenses.

Typically, there are five steps to MERPs Process :

1. Employers set allowance amounts

Employers can provide reimbursement for health-related expenses by enrolling employees in a medical expense reimbursement plan or MERP.

2. Employees purchase health care

Employees can purchase health care products with their own money, as well as add-ons like individual policies.

3. Employees submit proof of expense

Would you like to know how Medical Expense Reimbursement Plans work? Here are all the details.

  1. The date of expense incursion
  2. A description of the product or service
  3. The employee’s name

4. Employers review employee documentation

Employers review employee documentation to ensure the qualified expense is backed up with all necessary information. If an item is missing, the employer should inform the employee and allow them to provide additional information.

5. Employers reimburse employees

Once all necessary paperwork is filed, the company reimburses the employee up to their allotted amount.

In order to comply with federal regulations and reduce employer liability, a third party can set up MERP software that allows the employer to administer it in accordance with Section 105 plan documents.

What types of MERPs are there?

There are many different types of MERPs, and there isn’t one specific term that covers all of them. Below, we will discuss some common ways employers use MERPs and what they call the particular type.

1. Stand-alone MERP

If your organization is large enough, that it offers medical expense reimbursement plan (MERP) as a way for employees to deduct individual health insurance policy premiums from their income tax.

2. MERPs with a group plan

Employers are able to use MERPs in different ways depending on their needs. One common way is for employers to pair a group health plan, usually a high-deductible health plan, with an employer reimbursement scheme. It allows them to self-insure some of the cost using pre-tax dollars. This type of MERP allows employers to save money without any change in coverage or risk.

3. MERPs with an individual plan

When an employer includes an individual coverage HRA (ICHRA) in the medical benefits of employees, it can come with two types of plans: 

  1. Standalone ICHRA benifit
  2. ICHRA as a separate option in a larger organization’s health insurance program

4. MERPs for vision and dental

MERPs can be very limited in what they reimburse. If an employer wants to offer a vision or dental plan without buying expensive insurance, they can set up a MERP for their employees that only reimburses for vision and/or dental expenses.

Final Words

MERPs can help you with the costs of medical expenses. If you have a high deductible, this type of reimbursement plan is perfect for you! There are some other benefits to having one as well – read about them here!