As employers are looking to lower and control costs around their employee benefits program, some strategies that have not been widely known by smaller employers are making there way down market.  One of those is a Medical Expense Reimbursement Plan or MERP for short and they have been gaining in popularity in recent years as a way to lower company healthcare costs.

While the term reimbursement is used to describe the arrangement, in a modern MERP there is no reimbursement.  Instead, each enrolled member gets a Visa or Mastercard that can only be used for approved medical expenses up to the amount the employer pre determines at the beginning of the plan year.

What is a MERP?

Think of a MERP as a special account an employer sets up to help employees pay for medical costs. It’s not a health insurance plan itself, but it works with an existing one. The key is that instead of the employer paying a bunch of money upfront for insurance premiums that over insure about 90% of employees, the employer promises to reimburse employees for certain out-of-pocket medical expenses, like deductibles, copays, or even certain procedures, up to a specific dollar amount each year.

The employer gets to decide what counts as a reimbursable expense and how much they’ll contribute. This gives them a lot of flexibility in designing a plan that works for their budget and their employees’ needs. For the employee, it’s a great way to save money on healthcare because the reimbursement they receive is typically tax-free.

How a MERP Can Work for Your Business?

For an example of how a MERP might work, let’s consider a business that has 20 employees and is considering offering a health insurance plan that has a high deductible—let’s say $5,000 per person. While the monthly premiums for this plan are very low, the employers is worried employees might not be able to afford the high deductible if they get sick.

This is where a MERP can be a perfect solution.

The company decides to offer a MERP that will reimburse employees for the first $2,500 of their deductible each year. $2,500 is allocated as the annual budget for each employee’s MERP. .

Here’s how it plays out:

Employee A has a minor medical issue and incurs $1,500 in out-of-pocket costs. They submit their receipts to John’s company, which then reimburses them the full $1,500 from their MERP funds.

Employee B has a major surgery and racks up $8,000 in medical expenses. First, they use the $2,500 from their MERP to cover part of their deductible. Then, their main health insurance plan kicks in to cover the rest of the costs, and they only have to pay the remaining $2,500 of their deductible out of their own pocket.

The Financial Impact for Employers

So, what’s the big deal about MERPs and why they may be a good financial move?

Cost Control: A MERP allows companies a great way to control healthcare costs. Instead of paying expensive premiums for a low-deductible plan that might not get used, he only pays for the medical expenses his employees actually incur. This can lead to significant savings. In our example, if only 10 out of the 20 employees use their MERP funds, John only spends $25,000 for the year, far less than what he might have paid in premiums for a more traditional plan.

Tax Benefits: The reimbursements a company pays through the MERP are often tax-deductible as a business expense.

Attracting and Retaining Talent: Offering a MERP makes a high-deductible plan much more attractive and affordable for employees. This helps your company compete with larger companies and keep your best workers happy and healthy.

A MERP is a smart, flexible way for employers to provide valuable benefits while lowering company healthcare costs. If you’re a business owner looking for a creative and cost-effective way to support your team, a MERP might be just the thing!