Since its passage in 2010, the Affordable Care Act (ACA) has created standards and requirements around health insurance coverage for individuals and for employers. These federally-mandated standards have given rise to what’s known as “minimum essential coverage” (MEC).
If you’re an employer who offers—or plans to offer—health benefits to your employees, it’s critical that you understand minimum essential coverage (MEC).
But, what is minimum essential coverage (MEC)? That’s what this post is all about. Below, we’ll cover:
- What is MEC?
- Is MEC relevant to you? Understand the individual mandate v. the employer mandate
- Which plans qualify as MEC?
- Which plans do not qualify as MEC?
- Some recent changes to the ACA that may change everything…or nothing at all
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What is minimum essential coverage?
First, let’s get an understanding of what minimum essential coverage (MEC) entails. That is, what are some considerations that may support a plan meeting MEC? There is a technical definition of MEC that requires the coverage to meet “substantially all” of the requirements in Title I of the ACA. There are two main features that most plans have that we’ll discuss below.
Actuarial value of 60% or more
The term “actuarial value” sounds scarier than it is: it just refers to the percentage of total average costs the plan will cover. Oftentimes, the actuarial value is referred to as “minimum value,” in regards to the ACA. For employers with 50 employees or more, health insurance plans must have an actuarial value of 60% or more, in order to meet the “minimum value” requirement under the employer mandate. For employers who have fewer than 50 employees, the 60% value is not required, but many small group medical plans do meet or exceed this.
For a health insurance plan to qualify as MEC, it will typically have an actuarial value of 60% or more.
For example, if a plan has an 80% actuarial value, on average, then the individual covered would generally be responsible for 20% of the costs of all covered benefits.
A covered individual could be responsible for a higher or lower percentage, however, depending on their actual health care needs and the terms of the policy.
Covers 10 essential health benefits
In addition to the actuarial value, many plans that qualify as MEC under the employer mandate cover ten essential health benefits as outlined by the ACA. The ten essential health benefits are:
- Ambulatory patient services: This is outpatient care provided without being admitted to a hospital
- Emergency services
- Pregnancy, maternity, and newborn care both before and after birth
- Mental health and substance use disorder services, including behavioral health treatment, counseling, and psychotherapy
- Prescription drugs
- Rehabilitative and habilitative services and devices: Things that help people recover from injuries, disabilities, or chronic conditions.
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (this excludes adult dental and vision coverage)
To make things even more confusing, it’s important to note that the definition of MEC is a little squishy. Technically, neither an actuarial value of 60% nor essential health benefits are always required in order to meet MEC, but the vast majority of plans that meet MEC do include these.
Is minimum essential coverage even relevant to me or my business?
When the ACA was first released, an “individual mandate” was imposed: the individual mandate required all Americans to have health coverage (that met MEC) or incur a tax.
This has since been removed and is no longer a federal requirement; however, the states listed below have passed statewide individual mandates and require residents to comply:
- District of Columbia
- New Jersey
- Rhode Island
And, these states are pursuing statewide individual mandates (no legislation has been passed yet):
Although the ACA no longer requires all Americans to have health coverage, individuals living in the states listed above are required (or may soon be required) to choose health insurance that meets MEC.
By having minimum essential coverage, individuals covered by those plans meet the individual mandate and avoid having to pay a penalty.
Note that some states (like Massachusetts) have requirements that are even more stringent than MEC requirements.
The ACA requires companies to offer MEC to their employees if they have at least 50 full-time employees; this is known as the “employer mandate” and remains in effect today.
MEC also remains relevant for employers who are required to offer health insurance to their employees, as well as for employees that are seeking particular insurance premium or health expense reimbursements from their employers. For example, if you offer QSEHRA to your employees, they must be covered by an insurance plan that meets MEC in order to be eligible for reimbursements.
What kind of healthcare plans qualify as minimum essential coverage?
There are many types of healthcare plans that satisfy the ACA’s requirement for minimum essential coverage for individuals. They often times include:
- Employer-sponsored plans
- Health care plans purchased in the individual market
- Coverage under government-sponsored programs including:
- Most Medicare plans
- Children’s Health Insurance Program (CHIP) coverage
- Certain types of health coverage administered by the Veterans Administration
- Most types of TRICARE coverage
- Other plans such as like grandfathered health plans, state benefits risk pools, and student health plans
An individual may be enrolled under one of these plans under their spouse, partner, or parent and he or she will be considered to have MEC. For employers that need to comply with the employer mandate, the plans need to be MEC, have essential health benefits, meet minimum value, and other conditions.
The IRS has a complete list of what plans qualify as minimum essential coverage, which is especially important if you are being reimbursed by an employer for an individual health plan.
What doesn’t satisfy minimum essential coverage?
Certain health insurance plans or products that help pay for medical services do not qualify as minimum essential coverage. Examples include:
- Coverage only for dental or vision care
- Workers’ compensation coverage
- Coverage for a specific disease or condition
- Plans that only offer discounts on medical services
Health Reimbursement Arrangements and minimum essential coverage
For employers that may not be able to afford to offer group coverage to their employees, there is another alternative: health reimbursement arrangements (aka HRA).
An HRA is an employer-owned, employer-funded benefit that reimburses employees’ qualified health expenses up to a fixed annual amount. For some HRAs, unused funds may be rolled over for use in subsequent years. Employees submit receipts for the services they receive, and the HRA reimburses them. Employees are not taxed on these reimbursements.
Small Business hack: QSEHRA
A special HRA for small businesses is a Qualified Small Employer Health Reimbursement Arrangement or QSEHRA (pronounced “Q-Sarah”). QSEHRAs are only for businesses with fewer than 50 full-time (or equivalent) employees, as defined by the IRS. Businesses wishing to offer a QSEHRA also must not provide:
- group health insurance or
- a health flexible spending account.
Read this guide for more on QSEHRA eligibility.
QSEHRA and employee eligibility
One critical point about eligibility: to be eligible to participate in a QSEHRA, employees must have health insurance that meets minimum essential coverage, as defined by the ACA. As noted above, the individual may obtain health insurance via a plan they bought on the individual marketplace, Medicare, Medicaid, or other qualified health insurance coverage. It is also important to note that an individual cannot be reimbursed for their health plan premiums under a QSEHRA when they are on a parents’ plan, even if it is considered MEC; however, they may be eligible to be reimbursed for other medical expenses.
Recent-ish changes to minimum essential coverage and current events
Enacted on December 22, 2017, the Tax Cuts & Jobs Act (TCJA) made a pivotal change to minimum essential coverage. Remember that penalty we mentioned above? The TCJA set the penalty for not having MEC to zero. The final year that any individual would be subject to the penalty was 2018. For 2019 and after, the minimum essential coverage mandate was still in effect; it’s just that anyone that did not comply no longer had to pay the penalty. Even though there is no more individual mandate, those participating in a QSEHRA must still have MEC plans.
Since the TCJA virtually eliminated the penalty, now some states have challenged the Affordable Care Act in its entirety. The U.S. Supreme Court will be hearing a case in November 2020, California v. Texas, that challenges the constitutionality of the Affordable Care Act. If the Supreme Court decides that because the individual mandate was essentially wiped away, that would reverse the decision in NFIB v. Sebelius that gave the ACA its power to tax. That could have a profound and widespread effect on the current health insurance requirements for both employers and individuals.