Medical Expense Reimbursement Plan (MERP)
MERP Plans are sanctioned under Section 105 of the IRC. A MERP is a type of Health Reimbursement Arrangement (HRA) that enables employers to fund portions of their employees’ health plan deductibles, coinsurance, or copayments, as well as, cover the cost of other qualified medical expenses on a tax-free basis. MERP Plans are commonly utilized with higher deductible plan designs, giving the employer the flexibility to create any plan design they would like. By purchasing a higher deductible health plan, an employer and their employees can benefit from the premium savings, but utilizing the MERP allows the employer to continue offering a quality benefit package to employees.
MERP plans are a great step for an employer to start controlling their health plan costs year after year. When entering into a MERP Plan arrangement, the typical scenario is to realize a great deal of savings in the first year of implementation and the goal in future years is to continue stabilizing that cost each renewal. There is no physical account linked to a MERP Plan, like there may be with an HRA, the employer only reimburses for expenses after they have been incurred.
How a MERP Works
Under a typical MERP situation, let’s use an easy example to walk through the process.
ABC Employer is currently paying extremely high premiums to offer a $500/$1,000 Deductible plan to their employees. After learning about the MERP Plan, they decide to purchase a $5,000/$10,000 Deductible Plan, but still offer the $500/$1,000 to their employees; ABC Employer will be funding the difference between the Employee deductible to the purchased plan deductible, $4,500/$9,000.
John Smith, an employee of ABC Employer, has a surgery that costs $15,000, since he is under the $5,000 Deductible, his responsibility would be $5,000. After the surgery, John receives and Explanation of Benefits (EOB) from the insurance company that says his responsibility is $5,000. John sends the EOB into BDS and we process the claim and send him reimbursement for $4,500, since he is responsible for the first $500 of deductible. John will then receive a bill from the provider for $5,000 which he will then pay with the reimbursement from the company and his additional $500.
Tax Savings – Reimbursements to employees are tax-exempt, and contributions made by the employer are tax-deductible business expenses. However, a tax deduction can only be claimed by the employer once a claim has been reimbursed.
Flexibility – Funds can be used to pay for a variety of medical expenses not covered by the health plan including deductibles, copayments, prescriptions, coinsurance, dental and vision care. Employers have the ability to create any plan imaginable underneath the window of the purchased plan. This gives the employer amazing flexibility at targeting highly utilized portions of their current health plan to incent employees to become better consumers.
Control – The employer decides exactly how much money will be available to employees and how it will be disbursed. The employee’s responsibility and cost sharing are completely designed by each employer, no carrier intervention telling you what you can and cannot do.
Freedom – Employers can set up and/or change insurance plans without changing their MERP administrator, since Benefit Design Specialists is an independent third party administrator, we will always stay constant. Employees get use to having one point of contact with our staff and feeling comfortable knowing that their claims are being taken care of timely and accurate.
Once a design is chosen, the process moves to the second most important phase: Educating Employees.
Employees need to understand four things:
- What does the MERP cover?
- What gap does the MERP fill in the health plan?
- What documentation will employees receive from the health plan as it relates to claims?
- How do I receive a reimbursement from the MERP?
The most effective way to educate employees is through in-person group meetings where we provide employees with information on how to get their reimbursements, as well as, confront any question or concerns employees have from the beginning of the plan year.
One thing to keep in mind, this is change to employees, and in most cases, employees are very adverse to change. In the first year of implementation, there will be a slight learning curve, since the employees are actually involved in their healthcare. Please understand that we are here to relieve that burden. Education is not just a one-time meeting; it is an ongoing process throughout the plan year.
Reporting is the second most important piece of effective MERP Administration, behind Education. If you cannot accurately report on claims being paid and deductible utilization, you are left in the dark for making budgeting decisions and renewal decisions. BDS provides numerous custom reports to meet particular client needs. Two of the most valuable reports that we provide are:
- Mid-Year Reporting – This is a report that is run in the middle of the plan year to take a look at the previous year’s renewal and examine where claims stand year to date, as well as, what we project the overall cost of the plan to be by the end of the year. These reports are extremely helpful for an employer to understand how well the plan is running and for BDS to gain insight on how employees are utilizing the plan. Many of our employers currently use this report for end of year budgeting purposes.
- Claim Specific Reporting – Every EOB that is processed through our office is applied to a particular service, surgery, imaging, office visit, etc. We use this report to breakdown the overall claims and see where employees are most actively using the plan. For example, maybe an employer has $30,000 in claims, and we see that $17,000 of those claims are all for some type of imaging (MRI, CAT Scans, X-ray). Upon renewal, we can choose to target that portion of the plan to create incentives for employees to become better consumers.
Why Choose Our Company?
In an era of consumer directed health plans, experience and flexibility distinguish us from the crowd. BDS was one of the very first brokerages & administrative offices in Pennsylvania to begin implementing MERP Plans, since 2002, we have saved our clients more than $60 million in premium, that would have went to insurance carriers. We have dealt with multiple MERP Plan designs and reimbursement arrangements. We can easily help you in determining what is going to produce the best results, based upon your long term goals. Our experienced staff works with employers to design solutions which fit the needs of the organization, no matter the size. With our experience, we have grown very flexible in our ability to administer some of the most complicated plan designs very easily. Our ability to create any plan design imaginable, gives you the freedom to not only control cost, but employee behavior.
BDS Administration vs. Carrier Administration
While “seamless” carrier administration may seem like a great idea on the surface, there are a few things that groups must be aware of. BDS was the first to develop the MERP/HRA concept in the Central PA area back in 2002, with that said, carriers have attempted to copy our efficiency model numerous times and have continued to fail repeatedly, with 4 and 5 different administration relationships. While they may be free (by increasing your premium) or at a minimal fee, the adage of “you get what you pay for” becomes very evident. We have found, in numerous cases, where employers chose to move to carrier administration and paid 10-20% more in claims the following year.
MERP Plans were solely designed to get employees involved in the cost of healthcare and push the consumer driven health plan ideology, they were meant to get away from the health plans in the past, where employees had no involvement. The idea of having an HRA where an employee is not involved in the process and the carrier handles everything, is not helping employers control costs because employee behavior still has not changed.
BDS has worked with many clients since 2002 and administered plans using all scenarios, file feeds from carriers, paying employee’s or providers as well as the most effective model of employee’s submitting EOB’s to reimburse the employee directly. Carriers process numerous claims that are submitted from doctors and hospitals in error, thus resulting in direct file feeds (paying out these error claims automatically) as the most inefficient means of monitoring employer claim costs. Yes, we do charge a small fee for our administration, but when you compare our fee to what you may overpay in claims due to carrier processing inefficiencies, it’s easy to see why it makes sense to have an independent third party handle your administration.
Contact us if you would like to see how our MERP Plans could help control costs for your company.