HRA vs MERP

[Guest joeyc]

Can someone tell me the difference and pros and cons of an HRA vs a MERP?

Thanks!

[J Simmons]

Both acronyms describe reimbursements by an employer to an employee for health expenses. Neither involves employee contributions; the employer bears the expense. To be tax free, each must meet the requirements of IRC section 105(h).

A MERP has been the traditional term that referred to such plans by employers where any unused amount was forfeited at the end of the year.

The term HRA came into vogue in 2002 due to a couple of IRS pronouncements that made clear how such a plan could be designed so that unused amounts would carry forward passed the end of the plan year in which they accrued.

[leevena]

Maybe this link will help you. It shows side-by-side comparisons.

http://www.room100.com/textsept/page_5.htm

[Guest Sieve]

In my jargon, a MERP as an arrangement where the employer pays all medical expenses permitted/specified under the plan. A small employer may use it for those expenses which are co-pays or deductibles under the health care plan or might pay all non-insurance covered medical expenses up to, for example, $2,000/year. If a individual sets up a C corp and has no other employees, then a MERP can pay all medical expenses for the sole employee (owner), and they would all be deductible by the corp. Employees make no contributions (since it is not part of a cafe plan FSA). MERP benefits are paid from general assets as expenses are incurred and claims made. (An HRA is an arrangement where individuals have accounts funded by the employer at a pre-arranged amount per year, which will carry over if unused during the year--while a MERP has no individual accounts.)

I know that FSAs no longer can reimburse for non-prescribed drugs (other than insulin)--see IRC Section 106(f) (new under PPACA)--nor can HSAs or Archer MSAs (under other IRC Sections). My question, if anyone knows--John?--is whether the new drug prohibition also applies to MERPs, as I define them above. It would seem that Section 106(f) applies to MERPs (and, also, HRAs), since a MERP falls under 105(h). Comments/thoughts?

[J Simmons]

In my jargon, a MERP as an arrangement where the employer pays all medical expenses permitted/specified under the plan. A small employer may use it for those expenses which are co-pays or deductibles under the health care plan or might pay all non-insurance covered medical expenses up to, for example, $2,000/year. If a individual sets up a C corp and has no other employees, then a MERP can pay all medical expenses for the sole employee (owner), and they would all be deductible by the corp. Employees make no contributions (since it is not part of a cafe plan FSA). MERP benefits are paid from general assets as expenses are incurred and claims made.

I know that FSAs no longer can reimburse for non-prescribed drugs (other than insulin)--see IRC Section 106(f) (new under PPACA)--nor can HSAs or Archer MSAs (under other IRC Sections). My question, if anyone knows--John?--is whether the new drug prohibition also applies to MERPs, as I define them above. It would seem that Section 106(f) applies to MERPs, since a MERP falls under 105(h). Comments/thoughts?

I have separately come to the same conclusion as you, Larry, that Section 106(f) will apply to MERPs as well as other types of HRAs, given the reliance on Section 105(h) for the tax-free nature of benefits under either.

[SLuskin]

We use the terms almost synonymously. If there is a carry over, we always use the HRA document. If there is a simple POP plan for premiums, and the employer wants to somehow supplement the group medical plan, we use a MERP supplement to the POP plan.

[J Simmons]

We use the terms almost synonymously. If there is a carry over, we always use the HRA document. If there is a simple POP plan for premiums, and the employer wants to somehow supplement the group medical plan, we use a MERP supplement to the POP plan.

I think that colloquially if the unused part of an EE's benefits that an ER is willing to pay expire at the end of the plan year, then it is generally called a MERP, and if the unused part will carry forward then it is generally called an HSA due to the 2002 rulings using that term and by which carry forwards were first allowed. Both are ER promises to pay health expenses of EEs, their spouses and their dependents. Both rely on 105(h) for their tax-free treatment.

[jala]

In my jargon, a MERP as an arrangement where the employer pays all medical expenses permitted/specified under the plan. A small employer may use it for those expenses which are co-pays or deductibles under the health care plan or might pay all non-insurance covered medical expenses up to, for example, $2,000/year. If a individual sets up a C corp and has no other employees, then a MERP can pay all medical expenses for the sole employee (owner), and they would all be deductible by the corp. Employees make no contributions (since it is not part of a cafe plan FSA). MERP benefits are paid from general assets as expenses are incurred and claims made. (An HRA is an arrangement where individuals have accounts funded by the employer at a pre-arranged amount per year, which will carry over if unused during the year--while a MERP has no individual accounts.)

I know that FSAs no longer can reimburse for non-prescribed drugs (other than insulin)--see IRC Section 106(f) (new under PPACA)--nor can HSAs or Archer MSAs (under other IRC Sections). My question, if anyone knows--John?--is whether the new drug prohibition also applies to MERPs, as I define them above. It would seem that Section 106(f) applies to MERPs (and, also, HRAs), since a MERP falls under 105(h). Comments/thoughts?