MERP Compliance and Financial Considerations

Knowing how to manage a Medical Expense Reimbursement Plan (MERP) in compliance with federal regulations is important for helping your clients maintain the financial benefits of the healthcare program. As an insurance broker, you should be up to date with the latest compliance rules associated with your MERP employer group plan.

This comprehensive guide explores how MERP programs work, the producer's main MERP compliance obligations, financial implications and best practices for MERP administration.

Understanding Medical Expense Reimbursement Plans

A Medical Expense Reimbursement Plan (MERP) is an employer-provided benefit that allows organizations to reimburse employees for certain qualifying medical expenses.

Common reimbursable medical items include:

• Health plan deductibles.
• Health insurance premiums.
• Hospital care.
• Prescriptions.
• Vision care expenses.
• Dental expenses.

The plan aims to help employees cover the out-of-pocket healthcare costs that their insurance policy may not cover, such as deductibles, copayments or particular services. The main benefit of a MERP program lies in its tax benefits for employers and employees and its flexible healthcare cost management options.

Unlike insurance policies that offer first-dollar coverage, a MERP reimburses employees for their eligible medical expenses that they have already paid out of pocket rather than providing direct coverage. To receive reimbursement, workers must provide proof of payment, such as receipts or invoices.

Rather than being employee-funded, employers provide funds to cover reimbursements. Administrators manage the funds, ensure legal compliance and process reimbursement claims.

What Is Impermissible Coverage for Deductions With a MERP?

Items eligible for reimbursement can vary based on the type of MERP program an employer offers. Employers can establish which types of healthcare expenses they want to cover, whether they want to reimburse predictable medical fees or cover an expansive range of healthcare costs. Some items that may not be eligible for medical expense deductions include:

• Cosmetic surgery.
• Hair transplants.
• Controlled substances.
• Household help.
• Nutritional supplements.
• Funeral expenses.
• Future medical care.
• Unregulated operations and treatments.

MERP Programs vs. HSA Programs

Understanding how the MERP program compares to other health plans is important for clearly explaining the benefits and unique features of the MERP to employer groups. The Health Savings Account (HSA) enables employees to keep their funds even after leaving a company. Like a MERP, it is tax-advantaged, and funds can be used to pay for qualified healthcare expenses.

An HSA generally covers employees under a high-deductible health plan (HDHP). These plans have higher annual deductibles, meaning participants must reach the annual out-of-pocket maximum before the HSA can help pay for medical expenses. HSA programs cover qualified expenses similar to MERP programs when an employee's health insurance plan does not cover them.

To meet HSA eligibility, the participant must:

• Not enrolled in Medicare.
• Not have other health coverage.
• Have a qualified HDHP.
• Not be claimed as a dependent on someone else's tax return.

MERP Compliance Obligations and Considerations

When implementing MERP group insurance, knowing how you and the employers you work with can stay compliant with federal regulations is critical. A thorough understanding helps you avoid penalties and maintain the plan's tax-advantaged status. For example, producers need to ensure there is no discrimination and that employers maintain accurate records of plan details and reimbursements.

Here are five main MERP compliance obligations insurance brokers should consider.

1. ERISA Requirements

The Employee Retirement Income Security Act (ERISA) is a law that requires retirement and health plan participants within a private industry to follow a set of minimum standards. Because most MERP programs are considered group health plans under ERISA, you should ensure that the plan complies with ERISA's disclosure and reporting needs. Some of the main requirements include:

• Plan descriptions: ERISA requires MERP plans to have detailed descriptions of plan features and funding. Ensure all employers that are part of the MERP insurance group have summary plan descriptions that their employees can access through email or printed copies.
• Grievance and appeals process: Producers and employers should also establish a clear grievance and appeals process that employees can follow to get benefits from their plans. Participants should have the right to sue for benefits and breaches of fiduciary duty.
• Fiduciary responsibilities: Producers who manage and control plan assets must follow certain fiduciary responsibilities, like operating the plan in the best interests of beneficiaries and participants, following the plan document's terms to ensure it is consistent with ERISA and avoiding transactions that benefit service providers or other fiduciaries.
• Annual reports: Producers should check to ensure all employers file annual reports to the federal government. For this reason, documents should always be updated and regularly reviewed to ensure accuracy and compliance.

2. COBRA Considerations

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that provides employees and their families the right to continued healthcare coverage after losing MERP coverage. Group health plan providers should ensure employees are aware of this opportunity and have fair access to it. Whether a worker experiences a transition between jobs, reduction in hours, divorce, death or voluntary or involuntary job loss, they should have the right to choose to continue receiving group health benefits for a limited time period.

Qualified individuals are typically required to pay the full premium for coverage of up to 102% of the plan's cost. COBRA requires producers and employers to provide notice and ensure that employees under group health plans with 20 or more employees are given this temporary extension.

3. HIPAA Privacy Rules

The Health Insurance Portability and Accountability Act (HIPAA) aims to maintain the privacy and security of health information. Insurance brokers should ensure they and the employers they work with only use and disclose certain information with permission from participants. The HIPAA Privacy Rule gives individuals the right to control the disclosure and use of their data. They should be allowed to request corrections to errors and omissions and request copies of their information.

To stay compliant, employer groups and plan participants must be aware of these rights and responsibilities and implement regular reviews to ensure these rules are being upheld. Protected information under the Privacy Rule includes:

• The provision of healthcare to the individual.
• A participant's present, past or future mental or physical health condition.
• Past, present or future healthcare payments.

4. ACA Compliance

The Affordable Care Act (ACA) includes tax provisions and comprehensive health insurance reforms that insurance brokers should follow and ensure employers abide by. The ACA has market reforms that MERP programs need to comply with, such as amending the group health insurance plan to meet the ACA's essential coverage standards.

Noncompliance may lead to penalties under the ACA. Some important rules to comply with include not providing unreasonable annual limits or lifetime limits on the dollar value of benefits or providing continued coverage to dependent adult children who are not married until age 26.

Ensuring explanations in the coverage documents include:

• Definitions of insurance terms and medical terms.
• A description of the coverage.
• Cost-sharing provisions.
• Coverage exceptions, limitations and reductions.

5. Nondiscrimination Rules

MERP programs, like most other health plans, are required to follow certain nondiscrimination rules. For example, they cannot discriminate against participants with high-cost claims or favor highly compensated individuals. Staying compliant with government nondiscrimination rules is critical to maintain tax benefits.

ACA compliance rules also include a provision for preventing discrimination in health plans. Under ACA nondiscrimination rules, a participant is considered a Highly Compensated Employee (HCE) based on their results in compensation and ownership tests.

The ownership test determines whether the employee is a 5% owner during the current plan year or a 12-month period before the determination year.

The compensation test establishes if an employee is an HCE when the comprehension they received for the year exceeds 160,000. To help ensure plans abide by nondiscrimination rules, they should perform a benefits test and eligibility test established by the ACA.

Financial Considerations

Exploring the financial impacts of MERP insurance groups is just as essential as maintaining compliance to create an effective plan. Here are key financial considerations with a MERP.

Budgeting and Funding

Creating MERP group insurance requires efficient insurance cost management to improve budgeting and financial planning. For instance, the right measures can optimize expenses to help clients predict expenditures more accurately. As a broker, you should conduct a comprehensive market analysis, arrange alternative funding options for cost-saving opportunities and customize solutions to help employers manage MERP funding better.

Assessing potential risks, recommending suitable coverage levels based on those risks and negotiating terms during the insurance procurement process is valuable to help clients save money. Professionals who improve insurance cost management may help brokers lead with more innovative budgeting and funding solutions.

Tax Implications for Employers

Employers may experience a few tax benefits with a MERP, including:

• Tax reductions: The IRS allows employers to deduct healthcare reimbursements. This reduces their liability and lowers their taxable income.
• Deductible reimbursements: Section 162 of the Internal Revenue Code (IRC)enables employers to deduct reimbursement amounts as a business expense.
• Payroll exemptions: MERP medical expense reimbursements are exempt from Social Security and unemployment taxes.
• Lower contributions: Employers can reduce the amount they pay as part of their payroll tax contributions because reimbursements are excluded from payroll taxes.

To help employers maximize cost efficiency, brokers should help them balance reasonable reimbursement limits with cost-reduction techniques. This can include providing preventive care employee education, offering targeted care and implementing the MERP program with an HDHP to reduce premiums.

Tax Implications for Employees

Insurance brokers can also help employers make tax processes easier for employees. MERP programs offer workers relief since they are not required to pay Social Security or Medicare taxes on reimbursements — which are also not considered taxable income.

Do the following to ensure a tax-free status on MERP funds for employees:

• Ensure the funds are only used for qualified medical expenses
• Verify the MERP complies with nondiscrimination rules
• Check that employees provide valid proof of payment when submitting claims, such as receipts or invoices

Cost-Benefit Analysis

Make sure to measure the costs against the benefits for your employer group. Analyze your clients' claim history, insurance data and trends to make informed decisions about the best risk management strategies and coverage options. This information may also help you implement better safety measures and best practices that allow clients to reduce the likelihood of claims.

These reduced insurance expenses lead to improved profitability and higher profit margins, helping you build long-lasting relationships.

It's equally important to consider promoting competitive benefits to help your clients retain and attract top talent without significantly increasing plan costs. Build a long-term financial plan to help employers handle expected insurance market fluctuations and economic circumstances.

Best Practices for MERP Administration

To improve MERP administration and compliance with regulations, consider implementing the following best practices.

Establish Clear Guidelines

One of the first things you should help employers with is specifying clear guidelines to ensure employees are equipped with all the information they need. Clearly outline covered medical expenses and benefits, eligibility criteria, definitions and other essential points that comply with ACA rules.

Establish a streamlined process for onboarding new employees and ensuring they understand eligibility and enrollment procedures for the MERP program.

You and employers should also establish an eligibility verification process for adjusting, communicating and confirming eligibility when an employee experiences a qualifying event under the COBRA law.

Streamline Claims Processing

Managing the MERP efficiently can help confirm compliance and improve employee satisfaction. To enhance the reimbursement claims process, maintain detailed records of reimbursements and submissions to help demonstrate the plan's adherence to guidelines.

Create a process for reviewing and approving claims in which you verify the documents submitted meet reimbursement eligibility requirements.

Claim denials should also be transparent. Establish a structured appeals process to help employees seek clarification or contest claim denials.

Maintain Accurate Records

Maintaining accurate records is critical to ensuring you are ready to respond appropriately to audits and inquiries promptly. Internal audits are also important for monitoring compliance and making necessary adjustments when there are areas for improvement or discrepancies. This ensures you always take proactive measures that make the MERP run smoothly.

Communicate With Employees

Before your clients implement the MERP program, communicate with their employees through detailed guides, interactive webinars and frequently asked questions. These should explore the plan's advantages and how the MERP works. You can also offer additional support on how employees can maximize their benefits.

Improve MERP Compliance With The Difference Card

Are you wondering how you can maximize MERP administration, maintain compliance and optimize financial implications? The Difference Card offers compliance services to help brokers build a cost-effective healthcare plan that adheres to federal regulations.

We help administrative clients with nondiscrimination testing, plan documents, restatements and amendments to avoid penalties and protect the plan's tax-advantaged state.

To improve MERP compliance, request a proposal with us today.