Medical Expense Reimbursement Plan

Healthcare costs are rising fast, and many organizations are struggling to support employee well-being. Traditional reimbursement systems do not provide enough coverage and are too expensive. This is where the Medical Expense Reimbursement Plan changes the dynamic.
MERP is an IRS-approved strategy that allows employers to reimburse their team for qualified and out-of-pocket medical costs. This simplifies the administrative burden and improves employee satisfaction.
Paymedics specializes in MERP solutions that are designed to fit your organization’s goals. This blog will explain how MERP works and the benefits you cannot afford to miss. Scroll down for more!

What is a Medical Expense Reimbursement Plan?

A MERP is a benefit offered by the employer that enables companies to reimburse their employees for eligible medical expenses in an organized manner. It is regulated under Section 105 of the IRS code.  This makes the reimbursement 100% tax-free for the employee and 100% tax-deductible for the business. MERPs are frequently used to complement high-deductible health plans to reduce overall company insurance costs.

How a Medical Expense Reimbursement Plan Works:

The process of medical reimbursement plans is surprisingly grounded and straightforward. Here is a breakdown of how it typically works in practice:

Employer Designs the Plan:

The employer first defines exactly what the plan will cover. The employer decides what expenses are eligible, who qualifies, and how much can be reimbursed annually. This allows organizations to align the plan with their budget and workforce size. 

Employee Incurs Expense:

Employees visit their preferred doctors or pick up their prescriptions. They pay for these services as they normally would. The employer maintains a better cash flow throughout the years because the money stays in their bank until a claim is made. 

Simple Documentation:

Employees submit proof of their eligible medical expenses to receive reimbursement. This normally includes invoices or EOB statements. This documentation acts as proof needed to show the IRS that the money is being used for legitimate healthcare. This is what makes it tax-free.

Verification and Approval:

Every claim is checked to ensure it meets the plan’s guidelines. The administrator reviews the documentation and verifies the expenses. This step is important to keep the plan compliant with Section 105 regulations.

Tax-Free Reimbursement:

The employer reimburses the employee once the claim is approved. The employee gets the reimbursement via paycheck or direct deposit.

The Role of a Plan Administrator:

A medical expense reimbursement plan may look simple on the surface. But behind that simplicity is a critical layer of compliance and documentation. The IRS and Department of Labor have strict rules about how these plans are managed. This is where Paymedics steps in.

We specialize in administering these plans with precision and care. Our team makes sure every plan is reviewed thoroughly and every reimbursement aligns with regulatory requirements. This removes the administrative burden from your HR team. 

Types of Medical Expenses Covered Under MERPs:

One of the biggest advantages of anemployee medical expense reimbursement is its broad coverage and flexibility. The plan follows the broad guidelines ofIRS Publication 502. They can help with a ton of real-world costs that insurance often leaves you paying out of pocket. 

Here are commonly covered MERP expenses:

Medical Expenses:

• Doctor visits
• Hospital care
• Laboratory fees 
• X-rays
• Surgeries

Out-of-Pocket Costs from Health Plan:

• Deductibles
• Copays
• Coinsurance

Prescriptions and OTC:

• All FDA-approved medications
• Certain eligible over-the-counter items
• Menstrual care products

Dental and Vision: 

• Dental treatments
• Orthodontia
• Eyeglasses
• Contact lenses
• Vision correction surgery

Preventive Care:

• Annual physical examinations
• Immunizations and vaccinations
• Preventive screenings and early detection tests

Exploring the Different Types of MERPs:

Not all plans are built the same. The organization can structure the plan based on budget and workforce needs. Here are some common types:

Stand-Alone MERP:

This type operates independently and reimburses employees for eligible medical expenses. This structure is often used by small businesses looking for a controlled way to provide healthcare support. 

Integrated MERP:

The integrated one works alongside an existing group health insurance plan. It reimburses out-of-pocket costs that primary insurance does not fully cover. This approach strengthens the existing benefit package.

Qualified Small Employer HRA:

QSEHRA is created for businesses with fewer than 50 full-time staff. It allows the company to reimburse staff for individual health insurance premiums and other qualified medical expenses. It is a simplified and compliant way for small businesses to offer professional-grade health benefits.

Individual Coverage HRA:

An ICHRA allows employers of any size to reimburse employees for individual and ACA-compliant insurance policies. This model offers flexibility in workforce classification. It is commonly used as an alternative to traditional group health insurance.

Dental and Vision MERP:

A focused plan that covers only dental and/or vision-related expenses. It is often used to limit or supplement the scope of existing coverage.

MERPs vs. Other Health Benefit Plans:

There are so many options there when you are looking to upgrade the benefits of your company. A MERP is considered a more flexible option. It gives the employer far more control over the design than a standard Health Savings Account or Flexible Spending Account.

Here is a practical comparison among different options:

Feature	MERP	HSA	FSA	Traditional Insurance
Who Funds It?	Employer Only	Employee & Employer	Mostly Employee	Employer & Employee
Account Ownership	Employer	Employee	Employer	Insurance Carrier
Required Insurance	Usually any plan	Must have an HDHP	No specific requirement	Full Group Plan
Unused Funds	Stay with Employer	Roll over for Employee	Use it or lose it	Kept by Carrier
Tax Status	100% Tax-Free	Triple Tax-Advantaged	Tax-Free	Tax-Deductible

Conclusion:

You probably have read all the details. It is now clear that the Medical Expense Reimbursement Plan is a versatile tool for a growing organization. It gives control and tax efficiency to employers. It also provides employees peace of mind without worrying about prescriptions or unexpected medical bills.

If you are ready to give your team the flexibility of MERP, Paymedics makes the whole process stress-free. Our specialized platform is designed to handle stuff like IRS compliance and document verification.

Have questions? Let’s talk about a MERP that works for your organization.

FAQs!

Does HIPAA affect the medical reimbursement plan?

HIPAA protects health privacy. You need a secure and private process becuase the MERP claim contains medical data.

Does a MERP require a lot of paperwork?

It can if you do it manually. But an administrator like Paymedics automates that whole process from tracking to verification.

Is it the same as an HIRA?

These terms are often used interchangeably. A MERP is technically a type of Health Reimbursement Arrangement.

What are the downsides of MERPs?

It can cause unpredictable and monthly cash fluctuations for employers. This makes the budgeting complex and difficult. They also create administrative burdens and require strict compliance.

What is the IRS rule for expense reimbursement?

Section 105 of the Internal Revenue Code contains the IRS rule regarding expense reimbursement. Section 213(d) defines qualified medical expense, and IRS Publication 502 provides more details.

Is MERP cheaper than traditional insurance?

It is a cheaper option for smaller and medium-sized business. But it depends on how you set it up and your specific situation. Small employers using reimbursement-based plans commonly save 20-40% annually.

What kind of proof do employees need to submit?

Employees normally need to provide clear documentation that proves the expense was a qualified medical one. The IRS requires an itemized receipt or an EOB.

How do the reimbursements get to the employee?

Most organizations include the reimbursement in the next regular payroll cycle. Some prefer to send desperate direct deposits.