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MERP vs. HRA


Guest mariemerganser

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Both involve ER $ only.

Both require ERISA documents unless there is an exemption.

Both are subject to IRC sec 105(h).

The term MERP (medical expense reimbursement plan) was coined prior 2002, when the prevailing opinion was that unused amounts did not carry over after the year of accrual.

In 2002, a couple of IRS pronouncements set forth situations when the unused amounts may be carried over after the year of accrual, if so specified in the plan documents. In these rulings, the IRS used the term HRA (health reimbursement arrangement).

Hence, the colloquial use of the terms is that MERP connotes an ER $ health reimbursement plan that does not carry forward, and HRA is one that does permit carry over of unused benefits.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest mariemerganser

So what would the advantages of a MERP be? Also, with the HRA is there a specific amount that needs to be put away per month? With a MERP, they work on a pay as you go system, right? If that is the case, then why would the fact that the remibursement doesnt carry over matter?

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So what would the advantages of a MERP be?

Some ERs prefer a MERP because the forfeiture of unused benefits at the end of the year limits the amount of the potential liability for paying benefits, although most HRAs put $ caps on the amount of unused benefits that any EE may accrue under the HRA. MERPs are also used in conjunction with higher deductible health insurance plans. For example, suppose that an ER has a group health policy with $500 annual deductibles. The ER chooses to renew the policy with a $3,000 deductible for the premium savings and then provide a "buy down" MERP, one that reimburses EEs for health expenses for the year that exceed $500, up to that $3,000 when the new insurance would kick in. As deductibles work on an annual basis, a buy-down MERP to compliment it would also.

Also, with the HRA is there a specific amount that needs to be put away per month?

The ER may specify in the plan document any $ amount of benefits the ER wants to accrue, and the frequency of accrual. Typically it is monthly with an HRA because of the carry-over feature. As far as 'put away', most HRAs are unfunded and paid out of the ER's general assets. Accruing benefits are tracked as ledger accounts, without a separate fund.

With a MERP, they work on a pay as you go system, right?

Like HRAs, most MERPs are also unfunded as explained above and paid from the ER's general assets--if that is what you mean by 'pay as you go'.

If that is the case, then why would the fact that the remibursement doesnt carry over matter?

Carry over or not matters considerably. The ER's potential liabilities are affected as mentioned above. From the EEs' perspective, carry over offers an incentive to the EEs to use their HRA $ judiciously as the future need of them may be greater than the current need. If there is no carry over (such as in the typical MERP), EEs are actually incentivized to use the MERP $ before they expire at year's end.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest mariemerganser

Thank you so much for this great info and I apologize if my questions seem elementary. I guess what is confusing me is the "funding concept". With both HRA's and MERP's, the reimbursement comes from an unfunded account, money directly out of the companies assets, correct? And you set the HRA or the MERP to reimburse at a specific amount. So, for example, if a company chooses a $5000 deductible with 100% coinsurance and they plan on reimbursing the entire $5000 so that the employees have zero out of pocket, does this mean that with both HRAs and MERPs the employee is entitled to that full remibursement even if they make no claims? This is the part that doesn't make sense to me. I would assume, the reimbursement would only go to people who are actually making claims. Again, I apologize for the basic questions but I am really trying to get a grasp as I am starting to get larger group calls and the woman who is "advising" me on these larger cases doesn't have the time to teach me the basics but guarantees that she is one of the only people out there that knows the MERPS and that they are the best way to go etc etc. but can never explain to me why. I am basically trying to ask all the questions before deciding to move forward with her if there are others out there that know these so called special MERP techniques.

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With both HRA's and MERP's, the reimbursement comes from an unfunded account, money directly out of the companies assets, correct?

Payment of claims under both HRAs and MERPs may be out of the ER's general assets, or as to either, the ER may want to establish a separate trust fund and pay benefits out of that trust fund. There are a variety of reasons that a separate fund may be desired, but if it does, much more complex income tax deduction rules come into play as well as whether the trust fund's earnings are income taxable or tax-exempt.

And you set the HRA or the MERP to reimburse at a specific amount. So, for example, if a company chooses a $5000 deductible with 100% coinsurance and they plan on reimbursing the entire $5000 so that the employees have zero out of pocket, does this mean that with both HRAs and MERPs the employee is entitled to that full remibursement even if they make no claims?

Claims must be made in both cases for reimbursement. There must be proof that the EE has incurred qualifying medical expenses. However, using the two terms, HRAs and MERPs, you usually have different schedules over which benefits accrue, monthly and annually respctively. Also, you have different times at which unused benefits expire (from the employee's perspective, forfeit).

...I am really trying to get a grasp as I am starting to get larger group calls and the woman who is "advising" me on these larger cases doesn't have the time to teach me the basics but guarantees that she is one of the only people out there that knows the MERPS and that they are the best way to go etc etc. but can never explain to me why. I am basically trying to ask all the questions before deciding to move forward with her if there are others out there that know these so called special MERP techniques.

Ask her to put in writing the details of her unique, special MERP before you commit to it and then get a second opinion from someone knowledgeable about whether (a) that unique, special MERP works under the regulations, and (b) is the type of health reimbursement plan that best suits your individual situation.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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John:

If an employee has a carryover HRA, is his deductible increased to the HRA balance?

Don Levit

If it is the insurance coverage's deductible that you are mentioning, I've never seen a policy that keys into an HRA, much less one that would so increase the deductible. If it did, that would take away some of the incentive to the EE to not use HRA $ now and 'bank' them for the future. If all the EE is doing is increasing the amount of his potential deductible, he's not been rewarded by judiciously spending his HRA $.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest mariemerganser

Last question, I promise. When you say you have different times at which unused benefits expire I am unclear. And, in reference to that, these time frames are different for MERPS and HSAs, yes?

Also, with the HRA or MERP in place is it possible to lower the lifetime maximum on the HDP in order to get the sick employees off and onto HIPPA with hopes of managing/decreasing future claims thus avoiding future rate increases? Something I was told and it seems strange to me but again I'm not the expert.

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Last question, I promise. When you say you have different times at which unused benefits expire I am unclear. And, in reference to that, these time frames are different for MERPS and HSAs, yes?

MERP usually connotes a health reimbursement plan under which benefits not used by the end of the year they accrued are forfeited, i.e. they expire at the end of that year. HRA usually connotes a health reimbursement plan under which benefits not used by the end of the year they accrued may carry forward into later years--the unused benefits do not expire/forfeit at the end of the year in which they accrued. The HRA typically spells out when and under what circumstances those carried forward, unused benefits will expire in the future.

Also, with the HRA or MERP in place is it possible to lower the lifetime maximum on the HDP in order to get the sick employees off and onto HIPPA with hopes of managing/decreasing future claims thus avoiding future rate increases? Something I was told and it seems strange to me but again I'm not the expert.

I don't see the relationship between HRA or MERP usage and so getting "the sick employees off and onto HIPAA" or COBRA--which opens a whole new can of worms. The ER can choose major medical coverage that lowers the lifetime maximum and has a high deductible, with or without an HRA or MERP. If the purpose is to drive sick employees off of the coverage, you want to make sure that there is no HIPAA nondiscrimination violation in your purpose or manner of doing so. You ought to have that vetted by and get a legal opinion about your proposed plan of action before taking steps to implement.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest mariemerganser

Thanks. No, I wasn't planning on implementing such a plan just trying to wrap my head around all these bits of information I am receiving. And, you're right, that part of the question didn't relate to the HRA or MERP. The woman I have been talking to talks about all these "secret" ways to drive the claims down and one of her ways (so she says) is lowering the lifetime maximum in order to get people off the plan. My question to that is, don't they just then go onto COBRA?

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marie

Three things are quite possible:

1. You did not hear her correctly.

2. You did not understand what she said.

And most likely,

3. She does not understand what she is doing but thinks that she has found a "secret".

Possibly why it seems to be a "secret" that no one else knows, is that no one else seems to be doing it. Maybe they are not doing it because it simply does not work.

That does not mean that there are not many little known or little used ways of reducing healthcare costs. There are ways and they are little known and little used.

I can recall a person who sold HRAs in the 1980's. He could not get much credibilty for almost 20 years. He developed many many excellent presentations and made good money but nothing near what he should have made. There are many excellent ideas that have gained no traction mainly because they did not come from one of the major consulting firms etc.

To expand on the advice given by J Simmons, get a thorough explanation then get an opinion. At this point you probably do not know enough to be able to ask proper questions. Also read up on the subject first. Much good info is available on the Internet and much has been written by many law firms etc.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest mariemerganser

GBurns

I think you hit the nail on the head. I do believe that this lady might not know what she is talking about.....or maybe she did 30 years ago. I'm sure she is smart but the fact is that all I get is talk with no explanation. Problem is she has my partner brainwashed into thinking she's the only one in the business that knows the real ins and outs of reducing costs for large companies. Thing is, she has never been able to provide us with a clear explanation of what she does, blurb here, blurb there and lots of actuarial talk that frankly means nothing to me.

Can either of you make some suggestions of places or people I might be able to go to for help, training etc. I have been getting calls for 50, 100, 300 and even one 2000 person group(s) and I know fully insured plans are not the way to go with these folks.

I would be really interested in learning more about HRA's, managing claims, wellness programs, etc. EFlex Group seems to have great info on their site but my partner says we need actuarial information on how we are going to reduce claims etc and I don't know where to go for help/guidance with that kind of stuff. Any suggestions would be greatly appreciated.

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You might want to consider contacting:

Burns and Associates Inc

Pembroke Pines FL

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Last I noticed, their website was 'Under Construction'

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Thanks for the plug.

The website has been "under construction" for over 2 years and will probably never be up. It turned out that two "test" websites only got people who were not in a position to make decisions and who, although they were senior executives could not and/or would not make a recommendation to their CEO. So we market by making direct contact with the target CEOs. Time consuming and difficult, yes, but definitely more produuctive.

Most of the strategies that I employ or know of work with larger groups. This is mainly caused by the availability of better claims experience information and economy of scale. The claims information in many areas is sometimes only available for groups larger than 200 but it depends on the area. Also even with savings of around 40% the $ amount is sometimes not attractive enough to interest the company if it is a small employer, although to Exxon over $2,500 per employee per year was not attractive because it paled in comparison to overall profit. After all it was only $200,000,000.

We do not sell or promote MERPs, HRAs, HSAs etc and we try not to sell any health insurance intially, although we eventually end up taking over (or intend to) as agent of record especially in larger cases. We instead first restructure the tax deductions by an accounting change etc., then we reduce the premiums on the current insurance policies by various techniques using predictive modeling, lasering, centers of excellence and disease management, dependent etc verification and claims auditing etc.

We do not do all of these for everyone initially but progress in stages as the client is able to digest the shock of realizing that these things are readily available, they just did not see the forest because of all the trees. Much of what we do is outsourced to much larger well established companies who have long had these thing available. The main thing we do inhouse is the tax strategy. Much is done by the client's existing insurance carrier, under our direction. The client could have had it done before and the insurance company could have offered it, but they just never understood what their computers could do. That itself presents the biggest hurdle. The client's Benefits and HR are afraid that the CEO might realize and ask How come the staff did not know about these things? That is why we have to circumvent HR/Benefits and make direct contact with the CEO.

If you have personal contact with the CEOs of large companies, send me an email and we can see if anything is available for you or at the least give you some pointers if you have a warm market.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 2 months later...

"All whales are mammals, but not all mammals are whales" An HRA is a type of MERP. A MERP can allow both employer and employee contributions, and can be associated with a 125 plan. An HRA must be 100% employer funded and cannot be associated with a cafeteria plan. An HRA can allow rollover and spendown.

Those are the primary, major differences. All other requirements/features are basically the same.

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