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Got MERP? Consider Plan Options to Mitigate Spousal Risk

Quirky title, yes. Unimportant topic, no.

As most employer sponsors of health insurance are aware, 50-60% of their total costs are generally driven by the dependents of the people they employ. Migrating risks off your plan can help reduce overall costs and many plan sponsors have considered or have implemented one of the following approaches to transferring spousal risk:

  • Spousal SurchargeA straight forward way to incent spouses to decline coverage. Increasing the employee contribution level for those covering a spouse can be applied to any spouse on the plan or more narrowly defined to be applied only to spouses who have access to other coverage.
  • Secondary Payer EligibilityThis approach requires the plan sponsor to define eligibility in such a way that spouses who have access to other coverage are only eligible for your plan if, and only if, they enroll in that coverage. This tactic now makes your plan the secondary payer of coverage.
  • Spouses With Access to Other Coverage, Not EligibleA more aggressive approach is to define eligibility in such a way that spouses who have access to other coverage are not eligible for coverage under your plan.
  • Spouses Not EligibleThough ACA established an employer mandate, it made it clear that employers are not required to offer coverage to spouses. While politically challenging, an employer can define eligibility so that spouses are ineligible for the plan.

Recently, we have seen the concept of spousal risk transfer evolve into yet another option: Spousal Medical Expense Reimbursement Plan (MERP).

A MERP is a type of Health Reimbursement Account (HRA) and as such is governed by IRS Sec 105 (h). A MERP allows for employer funds to be used for reimbursement of employee qualified medical expenses including deductible, coinsurance and copayments on a tax free basis.

The Spousal MERP is set up as a separate plan with eligibility defined as follows:

  1. Spouses who have access to other coverage; and
  2. Are currently enrolled in the employer’s plan at the time the MERP is offered. However if a spouse had previously waived coverage prior to the establishment of the MERP, they are not eligible.

A spouse enrolled in the MERP receives a reimbursement card that can be used to pay for any and all deductibles, copays, out-of-pocket costs, and any additional premiums associated with their employer plan. In essence, they will receive first dollar coverage which is quite a strong incentive.

You’re probably thinking, that makes no sense, but the reality is that the math adds up and we are beginning to see more employers consider implementation of this risk transfer technique. The question is do you want your plan to aggressively transfer risk (MERP) or have your plan be open to adding unwanted risk (MERPed)?

As with all determinations of eligibility, it is important to consider all applicable laws including ERISA, HIPAA, ADA, etc. to make sure that the design and operation of the plan complies with all benefit laws and regulations.  It is important to fully understand your insurance carrier’s rules and limitations.  Last, any change in your plan, and its eligibility, will require a change to your plan document and compliance with employee notifications under various laws. 

Please contact your OneDigital service team if you would like to explore these options and understand which one will work best for you and your employees.