Healthcare costs aren’t slowing down, and HR teams are constantly juggling how to offer great benefits without blowing up the budget. While traditional health insurance is still the backbone of most benefit packages, tools like Medical Expense Reimbursement Plans (MERPs) are giving employers more flexibility and control.
If you’re exploring ways to stretch your benefits dollars while keeping employees happy, MERPs might be worth a closer look.
So, What’s a MERP?
A Medical Expense Reimbursement Plan (MERP) is an employer-funded arrangement that reimburses employees for qualified medical expenses—tax-free. Instead of just paying premiums to an insurance carrier, employers can design a MERP to cover specific costs like deductibles, copays, or even premiums (depending on how the plan is set up).
Think of it as a safety net you create for employees to help manage out-of-pocket expenses, while still keeping costs predictable on the employer side.
How Does a MERP Work?
- You design the plan – Decide what’s covered (deductibles, copays, prescriptions, dental, vision, premiums, etc.).
- Employees pay for care – They use insurance as usual and pay upfront for eligible expenses.
- Employees submit claims – Receipts or EOBs (explanation of benefits) are provided.
- Employer reimburses – Tax-free dollars go back into employees’ pockets.
Pretty straightforward.
Why HR Teams Like MERPs
- Budget control – You set the limits upfront.
- Flexibility – Cover only the expenses that matter most to your workforce.
- Recruitment & retention – It’s a perk that stands out, especially when paired with high-deductible plans.
- Tax benefits – Employer contributions are deductible, employee reimbursements are tax-free.
Compliance Stuff (Yes, It Matters)
MERPs aren’t the Wild West—you’ll want to make sure you’re compliant with:
- IRS Section 105 – Tax-free reimbursement rules.
- ERISA – MERPs are considered group health plans (plan documents, SPD, COBRA may apply).
- ACA rules – Standalone MERPs usually don’t fly unless they’re structured as ICHRA or QSEHRA.
- Nondiscrimination rules – Don’t just build it for executives; the plan has to be fair.
Good news: platforms like Mineral can help HR teams stay on top of compliance without drowning in paperwork.
MERPs vs. HRAs vs. HSAs: What’s the Difference?
Here’s a quick cheat sheet you can bookmark:
|
|
MERP |
HRA |
HSA |
|
Who funds it? |
Employer only |
Employer only |
Employee + employer |
|
Who owns the money? |
Employer |
Employer |
Employee |
|
Tax treatment |
Tax-free for employer & employee |
Tax-free |
Triple-tax advantaged (pre-tax contributions, tax-free growth, tax-free withdrawals) |
|
Flexibility |
Highly customizable |
Structured, with ACA-approved variations (ICHRA/QSEHRA) |
Tied to HDHPs only |
|
Compliance requirements |
ERISA, Section 105, ACA |
ERISA, ACA |
IRS rules |
|
Best use case |
Wrapping around HDHPs, reimbursing specific costs, executive carve-outs |
Reimbursing individual premiums or broader medical expenses |
Savings + paying for current/future medical expenses |
When Should HR Consider a MERP?
A MERP could be the right move if:
- You’re offering a high-deductible plan and want to soften the blow for employees.
- Premium costs are skyrocketing, and you need a creative funding strategy.
- You’re looking for a way to differentiate your benefits package without breaking the bank.
- You want flexibility to support different employee groups in different ways.
The Bottom Line
MERPs aren’t a replacement for health insurance—but they’re a powerful add-on tool HR pros can use to control costs, personalize benefits, and make employees feel supported.
With the right compliance guardrails and partners (like Mineral for compliance and Employee Navigator for smooth administration along with your friends at Generous Benefits!), a MERP can take your benefits strategy to the next level.
