Medical Expense Reimbursement Plans (MERPs), such as Health Reimbursement Arrangements, and Healthcare Reimbursement Plans, are defined as self-insured group health plans. As such, MERPs are required to follow group health plan non-discrimination rules.
This article outlines the non-discrimination rules and how they related to MERPs.
Generally speaking, non-discrimination rules state that all similarly situated employees be treated equally and that companies must not discriminate in favor of “highly-compensated individuals” (HCIs).
Non-discrimination rules most commonly come into question when businesses would like to provide different benefits to different types (“groups”) of employees.
For example, a business may want to offer an HRA to all full-time managers, but not to associates. Or, a business may want to offer different reimbursement amounts to different types of employees, such as $400/month to sales associates and $250/month to administrative associates.
Can businesses do this? Yes. However, businesses should take care (and work with a trusted broker or benefits provider) to ensure their plans pass non-discrimination testing.
To understand these rules further, let’s review the three main non-discrimination requirements that apply to group health plans, including MERPs.
1. IRS Non-Discrimination Rules
IRS rules state a plan must not discriminate in favor of highly-compensated individuals (HCIs) with respect to eligibility to participate in the plan or benefits provided under the plan.
If the plan is found to favor certain key employees or HCIs, the plan may be considered discriminatory.
Tips for MERPs:
- Design employee groups based on bona-fide job criteria and ensure all employees in the same group are treated equally.
- Do not have groups made up primarily of HCIs.
- Explicitly specify the basis on which discrimination testing will occur in the plan document.
2. ERISA Non-Discrimination Rules
Under Employee Retirement Income Security Act (ERISA), businesses are generally free to set the eligibility rules for their group health plans, as long as employees are provided sufficient notice of the rules and the rules do not unlawfully discriminate against certain employees.
Additionally, ERISA states distinctions among groups of similarly situated participants must be based on bona-fide employment-based classifications consistent with the company's usual business practice.
There is, however, one important exception. Under the ACA, an individual cannot be denied eligibility for the benefit or charged more for coverage because of any health factor.
Tips for MERPs:
- As discussed previously, design employee groups based on bona-fide job criteria and ensure all employees in the same group are treated equally.
- Do not base eligibility on any health factor, including disability.
3. Employment Non-Discrimination Laws
Federal employment law prohibits covered businesses from discriminating with respect to benefits and other privileges of employment, based on race, sex, disability, national origin, genetic information, region, or age.
Tips for MERPs:
- Ensure all similarly-situated employees are treated the same.
- Do not design employee groups based on age, race, etc.
- Understand state employment laws, which may have different or additional requirements.
With Medical Expense Reimbursement Plans, it is common to use employee groups to offer different benefits to different types of employees. This practice is allowed, so long as businesses design the benefit and employee groups to meet non-discrimination testing.
To comply with IRS, ERISA, and employment law guidelines, businesses should design employee groups based on bona-fide job criteria, ensure all employees in the same group are treated equally, and work with a trusted advisor or benefits company to ensure plan design compliance.
What questions do you have about MERPs and non-discrimination rules? We’d be happy to help. Leave a comment below.