MEC, or minimum essential coverage, is a type of benefit plan that has been introduced to help large employers provide lower cost health coverage options and potentially avoid the employer mandate penalty.
For an employer to avoid all penalties, the plans offered to eligible employees must:
- Provide Minimum Value: By law, the plan must offer minimum value, which is defined as satisfying a 60 percent actuarial value test – this means that a plan would pay for at least 60 percent of medical expenses on average for a standard population.
- Be Affordable: The affordability test looks at each employee uniquely, not the aggregated population. It compares what employees pay for coverage to each employee’s wages. The employee’s premium contribution for self-only coverage for the lowest cost plan cannot exceed 9.5 percent of the employee’s household income. If it does, the plan is not affordable and the employer has failed the responsibility to provide minimum essential coverage for that employee. Because employers cannot easily determine an employee’s household income, the law provides three options for this calculation: Box 1 of Form W-2, rate of pay or using the federal poverty level to benchmark income.
The IRS released a chart to help individuals determine if their coverage meets MEC so they might avoid the individual shared responsibility requirements of the ACA. Employers can also use the minimum value calculator to determine if their plan meets MEC.
For many large employers, particularly those that have never offered coverage before, MEC plans seem to be an affordable way to help employees get at least some coverage and avoid the individual mandate. However, many of the plans offer very limited benefits – preventive care and wellness benefits only – or exclude certain key benefits such as in-patient hospitalization or out-patient procedures. These self-funded, low-cost MEC plans (priced under $100 per employee per month) may satisfy the employer mandate to offer a group plan, thus avoiding the $2,000 penalty, but remaining open to the $3,000 penalty. Most MEC plans appear to be technically “ACA-compliant,” but they offer no protection to employees in the case of a catastrophic health event.
Changes to the definition of MEC plans are rumored to be in the works by the Treasury Department, so stay tuned. For questions about the ACA, contact your broker.