MERP or HRA: Which Plan has More Advantages?
Top 3 Advantages of Having a Self-Funded Medical Expense Reimbursement Plan:
It’s no secret that a well-planned Health Reimbursement Arrangement (HRA) can effectively reduce the cost of your health insurance spending. I’ve come to realize lately, however, that these plans have their limitations. With this thought, I started to dig into another option referred to as a Self-Funded Medical Expense Reimbursement Plan (MERP).
So, what exactly is a MERP? A MERP is a form of self-insurance. A client can use a MERP to lower group insurance costs and still cover the employees’ qualified medical expenses tax-free. It acts very much like a traditional Health Reimbursement Arrangement; it just does so with more flexibility. The main function of this strategy is to reduce your health insurance premiums without changing the benefit levels from your employees' perspective.
Here are some of the common issues surrounding a traditional HRA:
- HRAs are funded solely through employer contributions and may not be funded through employee salary deferrals under a cafeteria plan.
- Premium equivalent rates cannot be used to set employee contributions, because the result is assumed that a salary reduction is attributed to the HRA funding.
- An employer may not purchase one underlying health plan, have two different reimbursement arrangements (e.g. high/low) and charge different rates for the high and low plans. This is because a portion of the salary reduction is attributed to an increased maximum reimbursement amount of the coverage period.
Here are some of the advantages of a Self-Funded MERP:
- Allows employee contributions to go towards the plan.
- Premium equivalent rates can be used to set employee contributions.
- Allows an employer to purchase a single underlying plan offering and create multiple funding arrangements to create multiple plan design offerings. Employers can set different contribution levels accordingly.
Both methods can be and are commonly used to help mitigate health insurance costs. Both allow an employer to self-insure a portion of the deductible they feel comfortable with, creating savings from leveraging cheaper plans (high deductibles) from the carrier, however, MERPs offer a bit more flexibility.
For more information regarding a Self-Funded Medical Expense Reimbursement Plan, contact a member of the ‘A’ Team.
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- How Do You Like Your Benefits - Self-Funded or Insured?
- HRA or HSA
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