Back to School with MERP 101: A Crash Course on Medical Expense Reimbursement Plans

August 15, 2024

Cup of Joe | Ep. 8 – August

Welcome back to another episode of Cup of Joe! As summer winds down and the school season kicks off, it’s the perfect time to dive into a lesson that could save your business thousands. In the latest episode of Cup of Joe, CEO Joseph Donovan takes us through a crash course on Medical Expense Reimbursement Plans (MERPs) and their potential benefits. Whether you’re a broker, consultant, or employer, this episode is a must-listen. Here’s a quick breakdown of what you missed:

What Is a MERP?

Joe Donovan begins the podcast by introducing the concept of a MERP, or Medical Expense Reimbursement Plan. While the term might sound technical, it’s essentially a strategy that allows employers to enjoy some of the cost-saving benefits of self-funding without fully committing to a self-funded insurance plan.

Using a straightforward example, Donovan breaks down how a MERP works: by modifying a traditional fully insured health plan to include higher deductibles and copays, and then using a MERP to reimburse employees for those increased costs. This approach not only maintains the integrity of the benefits offered to employees but also generates significant savings for the employer.

Back-to-School Savings with MERP 101

Staying true to the back-to-school theme, Donovan structures the podcast as a lesson, aptly titled “MERP 101.” He walks listeners through a step-by-step example that highlights how an employer can reduce insurance premiums while still providing robust benefits to employees.

In the example, he compares a traditional plan with a $1 million premium to a modified plan with a $700,000 premium. By increasing the office visit copay from $20 to $50 and the deductible from $1,000 to $5,000, the employer saves $300,000. However, the key to making this work is the MERP, which reimburses employees for the increased out-of-pocket costs. Donovan estimates that the total claims for these reimbursements would amount to around $92,000, leaving the employer with substantial savings even after administrative costs.

The Financial Benefits of MERPs

One of the most compelling points of MERPs are the financial advantage that they can offer. In this example, the employer saves $178,000 without reducing the quality of the benefits provided to employees or switching insurance carriers. This approach not only protects employees from feeling the impact of higher deductibles and copays but also allows the company to reinvest those savings elsewhere.

Risks and Rewards: A Brief Look at MERP 102

While the focus of this podcast is MERP 101, Donovan briefly touches on the risks associated with this approach. The main concern is the potential for higher-than-expected claims, which could offset the savings. However, Donovan reassures listeners that The Difference Card offers solutions to manage this risk, such as capping the amount of claims and guaranteeing underwriting projections. These advanced strategies, however, are reserved for a more in-depth discussion in “MERP 102”.

Educating and Empowering Employers

As this episode comes to a close, one key takeaway is clear: understanding MERPs is essential for effectively managing employee benefits costs. The “lesson” on MERP 101 highlights how employers can unlock substantial savings without diminishing the quality of benefits offered to their teams. By embracing this approach, businesses can confidently navigate the complexities of employee benefits, much like students mastering a new subject as the school year begins.

This August episode of Cup of Joe not only educates but also inspires action for employers and consultants eager to optimize their benefits plans. For those ready to explore MERPs further, The Difference Card team is available to provide guidance and support.