If you sell or buy group health insurance, you may be looking for another way to skin the cat these days. Here's a concept: Mitigate risk by raising the deductible and instituting either a Health Reimbursement Arrangement or a Medical Expense Reimbursement Plan. MERPs predate HRAs; MERP born-on dates would be in the 1990s while the HRA would date from the 2000s. Both try to address the fixed cost of the health insurance premium by saving the employer money (buy less insurance, assume more risk), as well as changing employee behavior (by decreasing unnecessary usage).
The employer can reimburse certain medical expenses to the employee after they occur. Either concept allows an employer to buy less insurance and deliver the same quality benefits. Aim for a risk-neutral, cash-positive program.
What's the difference between an HRA and a MERP?
HRAs have a rollover feature akin to HSAs, whereas MERPs are "use it or lose it." Some would argue that by design, HRAs are more consumer-driven because of this feature.
How are they the same?
HRAs and MERPS share quite a few defining features, chief among them the employer-driven contributions and the ability to be either simple or complex. Here's a shortlist of similarities:
- Both are subject to Internal Revenue Code 105
- Third Party Administration is advised
- Reimbursement by employer to employee (or in some cases, direct to the provider at time of claim)
- Employer funded, controlled and designed. No health plan restrictions
- A commitment by the employer to pay (incurred claims covered by the MERP or HRA) and a hope not to pay
- The employer can contribute exactly the amount they want, so the cost of a MERP or an HRA doesn't increase year to year
- No prefunding required
Both HSAs and MERPs can also be simple or compex. They can include:
- Health only and/or dental, vision, etc.
- Front-end deductible or back-end deductible
- Deductible only, copays, or all 213(d) qualifying expenses
- Coverage for employee-only or employee and dependents
Are MERPs consumer-driven?
It depends on your perspective. Consumerism may stop without the rollover feature of the HRA. And there are other questions: Can they be paired with CDHPs? Are they used in place of copays or to pay for copays? How can employers mitigate utilization?
Here are some answers. MERPs and HRAs can:
- Stand alone
- Be coupled with a High Deductible Health Plan (no copays)
- Have benefits tied to the deductible, copays or services covered by the health plan
- Be made available for any IRC Section 213(d) expense
- MERPs and HRAs cannot:
- Permit employee contributions
- Permit cash-out options
- Permit reimbursement for other than 213(d) eligible expenses (substantiation rules apply)
What's the big idea?
The concept behind these plans is that the premium savings will generate enough to pay for: a) the administrative cost of the MERP and b) the claims for which the employer is responsible, so that the employer still sees enough savings over the fixed and variable expenses to lower their overall insurance costs. The higher the deductible and coinsurance risk to the employer and participants, the less risk to the health insurance company, which should result in lower rate increases due to claims from year to year.
Gentrie Reisinger Pool is president of the Fort Worth Association of Health Underwriters and a Texas sales rep. She can be reached at gentrier@yahoo.com.
