The Ins and Outs of Minimum Essential Coverage

Have you ever bought a product that came with a plethora of features – but you only used one or two of them? You only needed the minimum functionality and didn’t want to pay a lot extra for components that would hike the cost. In insurance, that’s a lot like minimum essential coverage (MEC). 

What Is Minimum Essential Coverage (MEC)? 

Sometimes referred to as “qualifying health coverage,” minimum essential coverage is any health plan that meets the Affordable Care Act (ACA) requirement for having health coverage. This type of insurance is designed to offer basic coverage for healthcare services such as preventive care, screenings, immunizations and wellness visits. 

In addition to job-based insurance, plans included are Medicaid, Medicare, Marketplace plans and those from the Children’s Health Insurance Program (CHIP). Healthcare.gov has a list of more Minimum Essential Coverage Categories. Common major medical plans providing MEC include: 

  • Health Maintenance Organizations (HMOs)
  • HMO Point-of-Service Plans
  • Preferred Provider Organizations (PPOs)
  • Preferred Provider Arrangements (PPAs)
  • High Deductible Plans (HDHPs) 

Minimum essential coverage can be further broken down into standard, enhanced and high-level plans. Standard MEC health insurance includes coverage for preventative, wellness and telehealth services along with prescription discounts. Enhanced MEC plans incorporate primary and urgent care visits and discounted specialist and laboratory services. The third category, highest-level MEC insurance, adds prescription coverage and low copays to the mix. 

Most health insurance provided by businesses meets the employer mandate. Plans that don’t qualify as MEC, though, are:

  • Vision or dental-only plans 
  • Workers’ compensation 
  • Coverage only for a specific disease or condition 
  • Discount plans for medical services 
  • Coverage only for accident or disability
  • Emergency Medical Assistance 
  • Supplemental liability insurance coverage 
  • Short-term plans purchased from insurance companies 
  • Coverage for on-site medical clinics 
  • Benefits for long-term care, nursing home care, home health or community care 
  • Hospital indemnity or fixed indemnity insurance 
  • Family planning-only coverage

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 Is MEC Similar to Essential Health Benefits?

You might have already heard of Essential Health Benefits (EHBs) — which is not the same as minimum essential coverage. EHB consists of 10 core benefits that, as of 2014, all small group health plans must cover. MEC has a lower threshold than EHBs but penalizes applicable businesses not meeting the employer mandate. 

Along with Essential Health Benefits, insurance plans typically must have the following qualities to be considered minimum essential coverage:

  • Affordability
  • Guaranteed availability and renewability of coverage
  • Fair Health insurance premiums
  • Medical Loss Ratio (the 80/20 Rule)
  • Dollar limits
  • Provision of minimum value (employer coverage only)

 Advantages of MEC Insurance

If your business has a generally healthy employee population who don’t often need to utilize major medical services, an MEC plan might be your best choice for coverage. It covers more than 60 recommended screenings and immunizations designed to prevent illness and detect conditions earlier — all of which result in more healthy employees and lower overall healthcare costs. Plus, healthier employees often miss work less and are more productive. 

For employers, providing an MEC plan to as many employees as possible is beneficial because it has the potential to help businesses attract and retain a skilled workforce. The premiums for minimum essential coverage are sometimes less than the cost of a traditional health plan, enabling employers to provide coverage that’s affordable and doesn’t break the bank. 

Disadvantages of Minimum Essential Coverage 

Along with a lower premium can come more limited insurance coverage. Employees without high-quality health insurance are less likely to seek care from a healthcare provider, which has the potential to make their illnesses more complicated — and costly to treat. Even when they do seek care, they’re typically required to fund a co-pay, adding to already high costs for goods and services. 

With MEC, the responsibility for premiums and deductibles is shared between the business and its employees, something not all employees prefer. Whereas this type of health plan can be a good idea for businesses with healthy employees, it’s probably not the best choice for companies employing a lot of individuals with pre-existing conditions. Another con of MEC? Employees eligible for minimum essential coverage do not usually qualify for premium tax credits. 

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Are Employers Required to Offer MEC to Their Employees? 

Yes, there are requirements (the employer mandate) for businesses to provide minimum essential coverage to their employees. However, those rules apply to applicable large employers (ALEs) — companies with at least 50 full-time (or full-time equivalent) employees in the previous calendar year. The IRS defines one FTE as 2,080 hours of work per year — or 40 hours per week for 52 weeks.  

The MEC offered by ALEs must meet thresholds for affordability and minimum value. If the minimum essential coverage does not meet these Internal Revenue Service (IRS) rules, they’re subject to shared responsibility penalties, such as: 

  • The Section 4980H(a) Penalty: This applies when (a) an ALE fails to provide MEC to at least 95 percent of its FTEs in any given calendar month and (b) at least one full-time employee receives a premium tax credit to help pay for coverage through the ACA Health Insurance Marketplace. 
  • The Section 4980H(b) Penalty: An employer not offering coverage to at least 95 percent of FTEs may incur this penalty, as will businesses that did not offer each full-time employee an option of “minimum essential coverage” that was “affordable” and provided “minimum value.”   

Just how expensive are these MEC penalties? For 2023, the Section 4980H(a) penalty is $240 per month ($2,880 annualized). For Section 4980H(b) penalties in 2023, that fee is $360 per month ($4,320 annualized). 

How is MEC Minimum Value Calculated? 

A health insurance plan meets the minimum value requirement if it pays at least 60 percent of total allowed costs for covered benefits. Also referred to as actuarial value, it requires insurance provided by employers to have a reasonable out-of-pocket maximum — i.e., the affordability and benefits of a Marketplace Bronze plan. Another standard is that the MEC plan must include substantial coverage of physician and inpatient hospital services. 

The affordability threshold for MEC plan premiums was initially set at 9.5 percent of an employee’s household income but is adjusted each year for inflation. The 2023 premium affordability threshold is 9.12 percent

This minimum value requirement only applies to ALEs, not businesses with fewer than 50 employees. A majority of small group health insurance plans exceed the 60 percent value or at least meet it. 

Internal Revenue Service federal building Washington DC USA

How Is MEC Reported to the IRS? 

There are two main forms employees providing minimum essential coverage are required to file with the IRS. Forms 1095-B (Transmittal of Health Coverage Information Returns) and 1094-B (Health Coverage) must be filed no later than February 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates. Employers also have to furnish a statement for each covered individual by January 31 of the year following the calendar year for which the information return must be filed with the IRS. 

Just to add a little confusion to this, self-insured employers also are subject to the information reporting requirements for providers of minimum essential coverage — whether or not they are ALEs under the employer shared responsibility provisions. According to the IRS, any applicable employer failing to comply with these reporting requirements is subject to general reporting penalty provisions under section 6721 (failure to file correct information returns — a $100 fee for each return with a maximum of $1,500,000) and section 6722 (failure to furnish correct payee statement — $250 for each statement with a maximum of $3,000,000). 

Recommendations for Employers Interested in MEC Health Insurance 

Deciding on which health plan is best for your employees — and your business — can be difficult, especially with rising costs. You want to provide those who work for you with quality health benefits but need insurance you can afford. That’s why it’s a good idea to work with professionals knowledgeable about health insurance and other financial services. 

At StenTam Employer Services, our multidisciplinary team will collaborate with you to find the best health plan options for your business. We understand the complexity of healthcare and the importance of making benefits easy, transparent and predictable. Get a quote today to find out more!

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