How a MERP works
Instead of paying for every dollar of care through a traditional group health plan, the employer funds a plan that reimburses employees directly for out-of-pocket medical costs — premiums, deductibles, copays, and other eligible expenses, as defined in the plan document.
- The employer adopts a MERP and defines what the plan reimburses.
- Eligible employees enroll and submit proof of expenses (or use a plan ID card where accepted).
- The plan reimburses the employee, tax-free, for eligible out-of-pocket costs.
Where Section 105 comes in
Medical Expense Reimbursement Plans are sanctioned by Section 105(h) of the Internal Revenue Code. Before 1978, employer plans commonly paired a high deductible for the rank and file with a MERP for officers and managers; the 1978 changes introduced nondiscrimination tests for self-insured MERPs. Our founder, Kevin O’Kane, watched those Senate subcommittee sessions first-hand. Read the founder story.
The spousal MERP: a bolt-on that reduces employer health costs
The most powerful use of a MERP is the spousal incentive model — the program Catilize Health® specializes in. Many employees have access to a second option: a spouse’s employer-sponsored health plan. A spousal MERP gives those employees a reason to use it:
- The employee (and dependents) enroll in the spouse’s employer-sponsored plan.
- The employee waives the employer’s group medical plan.
- The employer’s MERP reimburses the family’s out-of-pocket costs on the spouse’s plan — the program is designed so participants have 100% coverage with $0 out of pocket.
- The employer’s plan sheds the claims risk and cost for that family, while large claims are covered by the spouse’s insurer.
The result: employees get richer coverage than they had, and the employer converts an open-ended healthcare liability into a smaller, predictable reimbursement cost. It bolts onto your existing benefits — no carrier change, no disruption to the rest of your plan, and no new administrative burden, because Catilize handles plan documents, enrollment, claims adjudication, customer service, reporting, and compliance.
MERP vs. spousal surcharge vs. spousal carve-out
Employers trying to manage spousal coverage costs often consider a spousal carve-out (excluding spouses who have coverage available elsewhere) or a spousal surcharge (charging extra to cover them). Both are “stick” approaches — they take something away, and employees feel it.
A spousal incentive MERP is the “carrot” version of the same strategy: employees move to the spouse’s plan because it makes their family better off, not because they were forced. Participation is voluntary, the benefit is visible every time a medical bill is reimbursed, and the employer still captures the savings.
| Approach | What the employee experiences | What the employer gets |
|---|---|---|
| Spousal surcharge | Pays more to keep a spouse on the plan | Some cost recovery; spouse’s claims stay on the plan |
| Spousal carve-out | Spouse loses eligibility | Claims leave the plan; goodwill often leaves with them |
| Spousal MERP | Family moves to the spouse’s plan with $0 out of pocket | Claims and risk leave the plan; pricing is based on savings |
Tax benefits for employers and employees
Under a compliant plan, reimbursed claims are not taxable income to the enrollee, and the employer’s contributions are a deductible business expense. Because the spousal MERP replaces open-ended group-plan claims with defined reimbursements, the savings compound: organizations implementing the MERP only pay when they save money, and the program is cash flow positive in the first 30 days.
Employer and employee eligibility
Any employer offering a group medical plan can add a MERP to its menu. Employees are eligible when they are currently enrolled in the employer’s medical plan and their spouse has access to coverage through his or her own employer. The full eligibility rules, and what counts as proof of alternate coverage, are on the employee page.
The claims process
Enrollees show the ID card for the spouse’s plan first and the MERP ID card second. If the provider accepts the MERP card, the plan pays the out-of-pocket cost. If not, the participant pays up front and sends the Explanation of Benefits with the receipt or bill; Catilize verifies the service and in-network provider and reimburses, typically within two weeks and no longer than 30 days.
A real-world example
In 1992 a large manufacturing client told our founder that without a 30% cut in healthcare costs, 8,000 jobs would move to Mexico. Excluding working spouses (the “JCPenney rule”) would have delivered the savings but punished employees. Combining a MERP with spousal enrollment instead paid every deductible, copay and coinsurance for families who joined the spouse’s plan. The client realized almost a 40% cost reduction, and the integrated MERP that Catilize Health administers today was born. Read the full story.
One program, many names
Employers brand the program for their own workforce, so you may see it under names such as SIHRA® (Spousal Incentive HRA), Spousal MERP™, SAP™ (Spousal Advantage Plan), MAP™, FCIP™, the NetZero Health Plan™ and others. If your employer offers one of these, it’s the same Catilize-administered program described here. Check your enrollment materials or ask your HR team for your plan’s page.