A Medical Expense Reimbursement Plan is a novel kind of Health Reimbursement Arrangement (HRA). Employees can use MERPS to pay for certain out-of-pocket medical care expenses. While it’s difficult to sum up MERPs with a precise definition, we can review some of their key characteristics. MERPs allow employers to contribute to their employees’ health plan costs. Eligible costs include coinsurance fees, deductible payments, and copayments. All employer contributions are tax-free, and the money that employees put in the MERP can be used on a pre-tax basis.
The MERP process begins when the employer sets the maximum amount that it will reimburse. Employees then choose to enroll in a MERP either when they are hired or during the annual enrollment season.
At that time, employees should estimate how much they plan to pay in regular out-of-pocket health care expenses throughout the year. With that done, they enroll in a MERP and elect to have their estimated health care expenses deducted from their paycheck. When medical expenses arise down the road, the employee pays for the initial cost. The employer then reimburses the employee. An employee can use their MERP funds to pay for both their expenses and their dependents’ expenses.
MERPS are an ideal health care option for some employees and a poor choice for others. Here are some of the advantages and disadvantages of MERPs.
MERPs offer several advantages. For one, an employer’s reimbursements to employees are tax-exempt. Similarly, the employee’s contributions are tax-deductible expenses. Another advantage of MERPs is that they offer both employers and employees flexibility. Employees can receive reimbursement for a variety of medical expenses that would not be covered by most health plans. At the same time, employers can control how much they are willing to reimburse their employees.
MERPs also have disadvantages. First, the employer’s reimbursements will vary from one month to the next, making it difficult to plan ahead. Employers may not be able to tolerate this degree of instability. And employees have to spend additional time filing paperwork related to their health care costs. Doing so can impact their work productivity and increase the employer’s overhead costs.
MERPs cover a wide variety of medical, vision, and dental expenses, including:
Although common, many of these expenses do not fall under traditional insurance plans. Therefore, MERPS can produce higher quality health care for employees and increase their work satisfaction.
While MERPs may be a good choice for many businesses, adopting them is just one of many decisions you have to make as a business owner. Individually, these tasks might not seem like much. Collectively, they can take up all of your valuable time as a business owner.
MERPs are a cutting-edge health insurance plan that offers flexibility and favorable tax treatment to employers and employees alike.
The good news is that you don’t have to do all this on your own. We can help you do the taxing administrative work that comes with operating a business.
We’ve crafted an extensive collection of labor-saving products and services that can help you focus on the tasks that matter. We have products for every stage of the business lifespan. If you want to start your own corporation or limited liability company, then our Business Formation Services can get you up and running in no time.
If you need help keeping your current business compliant with your state’s laws, then our Worry-Free Compliance Service is for you. Dreading the thought of paying taxes because you’re not sure how much money your business brought in? Don’t worry. You can manage your business’s finances at your fingertips with ZenBusiness Money. We’ve got a way for every challenge. Let’s work together to make your business dreams come true.
Starts at $0 + state fee
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Ready to Start Your Business?