Mixing HRAs and MERPs with FSAs and HSAs

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 (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, the arrangements come with different federal regulations. Under the code, you may combine a MERP and HSA under certain circumstances to further expand benefits to employees. Combining the flexible options results in additional compliance requirements for you to consider.

Notably, because of the health plan requirements for HSAs, a MERP must be limited to specific reimbursements for employee expenses exempt from the HSA deductible requirement. The 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 that research incorporating both plans often seek outside administrative help to run the combined plan and ensure compliance with the federal regulations.

Jason R. Mau is an attorney in the Boise office of Parsons Behle & Latimer. He can be reached at 208-562-4898 or jmau@parsonsbehle.com.