ACA Mandate Penalty Eliminated

aca-mandateThe ACA has required people to have what the government has classified as minimum essential coverage, or else pay a penalty which now amounts to 2.5% of modified adjusted gross income over the income tax filing threshold.

While the House version of tax reform did not change the penalty in any way, the Senate version cut the penalty to 0% and in joint conference debates, the reduction was kept in the bill that was just passed by both houses. The Senate provision is not a repeal of the penalty, but instead a reduction, which could be increased by Congress in the future. While lower corporate and personal tax rates will take effect this year, this reduction will not become effective until 2019.

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Can a MEC Plan Help Your Company?

Under the Affordable Care Act (ACA), Applicable Large Employers (ALEs) can avoid paying the $2,000 per employee penalty for failing to offer qualifying health coverage by offering full-time employees a Minimum Essential Coverage (MEC) plan.

Offering the most basic benefits – MEC plans offer only the most basic level of benefits required under ERISA and while some may view them unfavorably, others view MECs as a viable alternative to paying costly penalties and sending employees to public Marketplaces.

MECs are extremely affordable – Since MEC plans cover only certain wellness and preventive services, many employers fund the entire cost even though this is not required. Simply offering a MEC satisfies the ALE’s obligation to offer coverage, as well as the individual mandate that can penalize employees who do not have coverage.

Some prefer a combined approach – Employers wishing to furnish more coverage may supplement a MEC with a Limited Medical Benefit plan. This can provide additional, restricted coverage for routine doctor visits and hospitalization, while still costing far less than a traditional health plan. Since employers can also be assessed $3,000 for each employee qualifying for a federal subsidy, some may pursue a combined option to keep workers from accessing a public Marketplace.

As we help companies weigh their options, MEC or a combination MEC/Limited Medical Benefit plan should be considered. If the costs associated with ACA present challenges to your organization, let us help you determine the best way to proceed

What You Need to Know About Minimum Essential Coverage (MEC) Plans

Employers with 50 or more employees are required to provide their full-time workers with access to Minimum Essential Coverage (MEC) under the Affordable Care Act (ACA). The mandate is intended to ensure that employees have the opportunity to enroll in an employer-sponsored plan that is both affordable AND comprehensive.

ebso-minimum-essential-coverageWhen the Affordable Care Act officially became law in 2010, applicable larger employers (ALEs) quickly began looking for ways to comply with Minimum Essential Coverage (MEC) requirements. MEC plans were created to gives employer an option that was both affordable and in compliance.

The government has established two tests to determine if MEC requirements are met:

Test One: Minimum Value – To pass this test, at least 60% of medical costs must be paid by the plan, based on the average costs for the standard population. This calculation can be tricky when applied to complex self-funded plans, and a safe harbor checklist is available for plans to use to aid the process. In most self-funded cases, however, this test is easily passed.

Test Two: Affordability – Affordability is determined by examining each unique employee and comparing coverage payments against employee wages earned. Employee premiums cannot exceed 9.5% of their household income or the plan is deemed not affordable. For employees offered multiple plan options by the employer, the calculation is based on the least costly plan option available and not the option selected by the employee, as they may elect higher cost coverage.

With the introduction of MEC plans, many workers who were previously without access to employer sponsored coverage are now able to enjoy preventive care programs and additional benefits that encourage health and wellness. MEC plans also enable ALEs to avoid costly tax penalties associated with the ACA. MEC plans can vary in cost from as little as $400 per employee, per year, depending on the levels of coverage the employer chooses to provide.

Many of the benefits typically included in MEC plans are as follows:

  • Doctor visits
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Prescription drugs
  • Laboratory services
  • Preventive and wellness services
  • Mental health services
  • Habilitative services (to help a person keep, learn or improve skills needed in daily living)
  • Dental care

A Word of Caution For Employers and Enrollees

When enrolling in any health coverage, it is very common for individuals to think they will have a full medical plan. This is not the case with a Minimum Essential Coverage (MEC) plan. While MEC plans absolve covered employees of the individual mandate and employers from the sledge-hammer penalty, they do not include full medical benefits such as hospitalization. In-hospital care is a part of what the ACA describes as Essential Health Benefits, which are required of Minimum Value Plans, however Minimum Essential Coverage plans and Minimum Value Plans (MVPs) are not the same.

While MEC plans provide great preventative care, one of the reasons that MEC plans are so affordable is that while they include a minimum of the 67 preventive benefits required by the ACA, most do not cover a hospital stay or an in-hospital procedure being done. As long as this is communicated clearly and understood fully by enrollees, MEC plans are great solutions for employers who do not currently offer coverage.

A number of Minimum Essential Coverage (MEC) plans are now available. Contact EBSO for more information as you begin your 2016 business planning.