Monday, April 30, 2007

Express News does great job of explaining MERP benefits

Ever work on something that took a couple of years? With the recent publication of David Hendrick's column on medical expense reimbursement plans, I think I have found some closure on a project involving these unique health benefit plans. For the past few years, I have worked with Stephen Geri, the principal at Diversified Insurance Brokerage Service, to get an article with David.

Two weeks ago, Hendricks did a great job of describing the benefit of MERPs and how Hero Logistics, a San Antonio Toyota supplier, is saving money through the use of this unique insurance product in his column.

Here's David column in case you missed it:

David Hendricks: Plan lets firms cut health costs
Web Posted: 04/18/2007 10:40 PM CDT
San Antonio Express-News
Companies like to offer gold-plated health-care insurance plans, but not when premiums rise faster than employers can afford.
Does a company pay the higher premiums? Or do they reduce the premiums by agreeing to higher deductibles, which would increase employees' out-of-pocket expenses?
A rarely used third option can be used, especially by small companies struggling to keep their benefits competitive with other employers.
It's called a Medical Expense Reimbursement Plan, or MERP.
Instead of paying higher premiums at renewal time, a company could raise deductibles for such high-cost claims as operations and hospitalizations.
News link
Medical Expense Reimbursement Plan
That kind of decision can lower premium costs dramatically. For example, a company with 20 covered employees can save $800 a month.
Companies selecting the higher deductibles could set aside the $9,600 in annual premium savings, or any amount it wishes, into a MERP account.
When an employee or covered dependent needs hospitalization or an operation, the deductible would change from $250 to $1,000. The MERP account allows the company to cover the extra $750 in deductible costs.
At the end of the year, the company's surplus of unused MERP funds can be applied to the following year's premiums, or the balance may be forwarded into the next year's account. Either way, the company saves money.
The result is that both the company and the employee lower their premium costs. MERP funds and the accrued interest remain tax-deductible to the company as long as the dollars eventually are applied to health claims or insurance premiums.
Health-care plans with deductibles as high as $2,500 or $5,000 are available.
The risk comes when employee deductibles total more than funds set aside. Among policies nationwide, however, only 5.8 percent of employees ever maximize their deductibles. That alone indicates the extravagant cost for low-deductible health-care insurance plans.
Two Toyota supplier companies recently switched to MERP plans administered by Diversified Employee Benefit Services Inc. in San Antonio.
HERO Logistics, with nearly 200 workers, and HERO Assemblers, which soon will employ 40 people, switched to a MERP plan this year.
"The plan is transparent to the workers," said Ray Romero, president of HERO Assemblers and vice president of the logistics firm. The workers do not notice the difference because their deductibles remain at $250 even though the company bought a $1,000 deductible plan.
Companies could administer their own MERP accounts. However, most will choose to hire an outside administrator to manage the fund, partially to avoid possible lawsuits alleging bias or mismanagement.
In a way, MERP plans are like flexible spending plans that many employees maintain with their own money. In a flexible spending plan, employees divert a certain amount of dollars from each paycheck, free of income taxes, into a fund to cover medical expenses that insurance does not cover.
With a MERP, the company covers those higher deductibles instead of having the employees do it.
"The beauty of the MERP is that the employer controls the dollars," said Stephen Geri, managing general agent of Diversified Employee Benefit Services.
Romero said workers do not choose an employer for its MERP. "Just having a good plan is what matters," he said.
To the extent that a MERP can help an employer maintain a "good plan," it can give a company a competitive edge by holding down costs.

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