How do MEC and Minimum Value Plans work within the ACA?
As employers evaluate benefits to offer in light of the ACA, there are several factors to consider, including penalties, value of coverage, and the costs of coverage. This blog outlines the ACA regulations pertinent to employers, penalties for noncompliance, and how MEC and Minimum Value plans can be used to offer healthcare options that are beneficial for the employee and the employer’s bottom line.
What are MEC plans and how do they work within the laws of the ACA?
The ACA requires employers with 50 or more full-time (and full-time equivalent/FTE) employees to offer affordable health insurance to at least 95 percent of all full-time employees.
The IRS will levy significant penalties for non-compliance:
- Sledge Hammer Tax
- For employers who choose not to offer coverage
- $2,000 penalty for each full-time employee
- Tac Hammer Tax
- For employers who provide a plan that does not meet certain minimum requirements
- $3,000 penalty per employee who receives subsidized Marketplace coverage
These rules create enormous changes and potential costs, particularly for industries with a large percentage of workers for whom employers traditionally have not funded group health benefits. Among the sectors most impacted are convenience retail, restaurants, staffing companies, nursing homes, home health care, hotels and resorts/casinos and security companies.
As a result, many employers are implementing Minimum Essential Coverage (MEC) plans, which support them in two key ways. First, they enable organizations to satisfy part of the large employer mandate for employee healthcare. Second, it helps them avoid the $2,000/full-time employee Sledge Hammer Tax.
Despite the benefits of MECs, employers should be aware that these plans do not protect them from the ACA’s Tac Hammer Tax. Consequently, employers should ask themselves which employee benefit plan option would be most cost-effective. Let’s do the math:
Employers Not Offering Coverage
80 full-time employees – 30 FTEs*: 50 FTEs
Total Sledge Hammer Penalty: $100,000
*Employers get to subtract off 30 employees before the penalty is calculated.
Employers Offering MECs
Assume 2 FTEs qualifying for federal subsidy: 2
Total Tac Hammer Penalty: $6,000
**The employer would pay one-twelfth of $3,000 for each calendar month a full-time employee received an applicable premium tax credit or cost-sharing reduction.
MEC plans are a viable solution but are not what most think of as traditional health insurance. They cover only certain wellness and preventive services specified by the ACA. Hence, the cost is less than traditional group health insurance and can be paid by the employer, the employee, or co-funded.
Simply offering a MEC plan satisfies an applicable large employer’s ACA obligation to offer coverage and eliminates the $2,000 Sledge Hammer penalties. At the same time, MEC coverage allows employees to satisfy the individual mandate provision of the ACA, thereby avoiding individual penalties incurred if they don’t have minimum essential coverage.
What are Minimum Value Plans and how do they work within the laws of the ACA?
A plan is considered to provide minimum value when it pays on average at least 60% of the total allowed cost of benefits covered under the plan. This means that enrollees pay (via deductibles, coinsurance, copayments and other out-of-pocket amounts) on average no more than 40% of the total allowed cost of benefits. Minimum value does not take into account the amount paid for premium.
In general under the employer shared responsibility provisions, an applicable large employer (ALE) may either offer affordable MEC Plans or Minimum Value Plans to their full-time employees. MEC plans by design do not meet the Minimum Value requirements. However, many employers are choosing to go this route knowing that they could still potentially owe an employer shared responsibility payment to the IRS.
There are two potential ways the employer shared responsibility payments could be invoked on employers: (1) if the MEC plan offered by an employer is not affordable and (2) if the benefits offered do not provide minimum value. If at least one full-time employee receives premium tax credit for purchasing coverage through the Health Insurance Marketplace, whether it’s due to affordability or the availability of plans with minimum value, employers are likely to pay shared responsibility payments. In either case, it’s important for employers to thoroughly evaluate their options in order to pursue the most cost-effective solution for their business.
How do you move forward with one of these options?
Call Benefit Management Administrators and we will work with you to conduct a cost analyses. In most cases, we find that nearly all companies can reduce their expenses by delivering one of the following choices: a standalone MEC plan or a MEC plan with a Limited Medical Benefit plan.
Some businesses that are already devoting funds to employee benefits are saving money by using this unique solution. Compared to paying the penalties for offering no benefits, MEC Plans or MEC Plans with a Limited Medical Benefit plan represent the best solution to challenges that ACA presents for employers.
Written by: BMA’s Marketing and Sales Director, Tammy Lawson