In Pennsylvania, a Medical Expense Reimbursement Plan (MERP), also known as a Section 105 Plan, allows employers to reimburse employees for medical expenses not covered by health insurance.
1. Establishing the Plan
Eligibility: Determine who is eligible (full-time employees, specific classes of employees, etc.).
Funding: Decide on a funding amount or limit per employee, often based on their role or family status.
Covered Expenses: Typically, you can include a range of medical expenses like deductibles, co-pays, vision care, dental care, and prescriptions.
Compliance: Make sure the plan complies with IRS Section 105 and other relevant state and federal laws.
2. Plan Design Options
Fixed Reimbursement Allowance: Set a capped amount per employee for medical expenses. Integrated MERP with High-Deductible Health Plan (HDHP): Often used to help cover out-of-pocket costs under high-deductible plans. Specific Reimbursement Types: Define eligible expenses carefully, focusing on necessary medical expenses as per IRS guidelines.
3. Administrative Setup
Written Plan Document: Required by the IRS, this document should outline plan terms, reimbursement limits, eligibility, and what constitutes a qualifying expense.
Claims Process: Create a process for employees to submit expenses for reimbursement, including receipts and proper documentation.
4. Tax Implications
For Employers: Contributions are generally tax-deductible. For Employees: Reimbursements are usually non-taxable if the plan is compliant with Section 105 rules.
5. Compliance and Reporting
IRS Compliance: Section 105 plans must follow nondiscrimination rules to ensure they benefit employees fairly. ERISA: If self-insured, ensure the plan follows ERISA requirements, like providing a Summary Plan Description (SPD). Affordable Care Act (ACA): The MERP must be ACA-compliant. Integrating it with an HDHP is a common compliance method.
6. Communication to Employees
Clearly communicate how the plan works, eligibility criteria, covered expenses, and the claims process.
Regularly update employees on any changes, contribution limits, and tax implications.
Would you like a sample plan document, or do you need further guidance on a specific part? Contact us today to help!
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