What’s the difference between an HRA and a MERP?

A MERP (Medical Expense Reimbursement Plan) is actually a type of HRA, but the term is often used to describe a specific strategy rather than a different kind of account.

Both HRAs (Health Reimbursement Arrangements) and MERPs are employer-funded plans that reimburse employees for eligible medical expenses. They are governed by the same IRS rules under Section 105 and are tax-free to employees when used properly.

So why use a different term? “MERP” is usually used when the HRA is implemented as a deductible-reimbursement strategy, a way for an employer to self-fund part of a higher-deductible group health plan in order to lower premiums.

Here’s how a MERP typically works:

• The employer selects a higher-deductible health plan (to reduce premiums).
• The employer uses a MERP to reimburse employees for a portion of the deductible or other out-of-pocket costs.
• Claims are submitted and reimbursed much like a traditional HRA.

Example: the health plan has a $5,000 deductible. The employer sets up a MERP to reimburse the first $3,000, so the employee effectively experiences only a $2,000 deductible.

Bottom line: all MERPs are HRAs, but not all HRAs are MERPs. “MERP” is essentially a nickname for a popular deductible-reimbursement strategy built on HRA rules, a flexible, cost-saving tool that lets an employer share risk with the carrier and reduce premiums without increasing the employee’s burden. Because a MERP is itself a group health plan, it must be properly integrated with a compliant group health plan to satisfy ACA rules.

Sources

• Internal Revenue Code §105 and §106 (employer-provided medical expense reimbursement).
• IRS Notice 2013-54 (integration of HRAs with group coverage).

Content history
Originally published: March 27, 2025
Last reviewed: June 16, 2026