A HRA and/or MERP is a plan where an employer reimburses an employee for non-insured health expenses incurred by the employee or his eligible dependents. It is a type of partially self-funded benefit with the risk level set by the employer. By taking a portion of risk, in most cases the employer will see a cost savings by paying lower premiums to the insurance carrier and therefore use the savings to fund the plan. A MERP is not a section 125 plan in that it is employer funded (not employee funded) and does not include a “use it or lose it” provision.
A HRA and/or MERP offers advantages to both the employer and the employee. The medical expense reimbursements are tax deductible by the employer and provide greater flexibility in the plan’s design provisions, maximum amounts for reimbursement and setting of eligibility requirements. Employees receiving reimbursement under the plan are not taxed provided they do not take a deduction for the medical expense on their personal tax return filing.
QVI can assist the employer step by step to set up the HRA and/or MERP that best suits their individual needs, in addition to providing the written documentation needed to satisfy the rules of Internal Revenue Code Section 105. For example, the employer with a low deductible health plan may change to a plan with a higher deductible resulting in fewer dollars spent in premium to the insurance company. The employer then uses the saved dollars to fund the deductible difference between the lower deductible plan and the higher deductible plan, usually resulting in an overall savings in cost.