Mixing Health Reimbursement Arrangements and Medical Expense Reimbursement Plans with Flexible Spending Accounts and Health Savings Accounts
Q. Can we offer a medical expense reimbursement plan (MERP) along with a health flexible spending account (FSA) or a health savings account (HSA) plan?
A. A MERP is an employer-sponsored, tax-advantaged healthcare reimbursement arrangement (or a Health Reimbursement Arrangement (HRA) – not to be confused with an HSA). MERPs/HRAs are codified under a different section of the Internal Revenue Code than the typical FSA or HSA plans (a Section 105 Plan instead of Section 125 Plan). Therefore, these arrangements come with different federal regulations. Under the Code, an employer may combine a MERP and HSA under certain circumstances to further expand benefits to employees. Combining these flexible options results in additional compliance requirements for employers to consider.
Notably, due to the health plan requirements for HSAs, a MERP must be limited to specific reimbursements for employee expenses exempt from the HSA deductible requirement. These expenses are vision and dental expenses; health insurance and long-term care premiums; and expenses for wellness/preventive care. Otherwise, a standard HRA/MERP permitting reimbursement for all medical expenses would make employees ineligible for an HSA. Many employers who research incorporating both plans often seek legal administrative assistance to ensure compliance with the federal regulations.
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