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Are MEC Health Plans The Game Changers for Employers in ACA Countdown?

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healthcare on September 4, 2014 - 6:11 am in News & Insights

Certain applicable large employers, once panicked about penalties associated with the employer mandate provisions of the Affordable Care Act are breathing a sigh of relief thanks to innovative benefits approaches now available in the marketplace. One solution capturing a great deal of attention combines Minimum Essential Coverage (MEC) with Limited Medical Benefit plans. While this option holds tremendous promise for some employers, it’s wise to explore this opportunity thoroughly with a qualified benefits advisor.

Here’s the main attraction: MEC plans can enable organizations to satisfy one part of the large employer mandate and avoid paying a $2,000 assessment per full-time employee for failing to offer full-time employees qualifying health coverage.

But the devil is in the details. While MEC plans can eliminate the $2,000 penalty, employers should be aware that these plans do not protect them from the ACA’s $3,000 penalty per each employee who goes to a public exchange and qualifies for a federal subsidy.

Also, because MEC plans offer only the most basic level of benefits required under ERISA, employees might view them unfavorably unless combined with other benefits policies. Nevertheless, in the right circumstances, this approach is ideal for some companies that may face devastating financial outcomes or workforce decisions due to ACA.

The Basics

Let’s start with fundamentals:

  • The ACA requires employers with 50 or more full-time (and full-time equivalent) employees to offer affordable health insurance to at least 95 percent of all full-time employees.
  • The IRS will levy significant penalties if an employer:
  • Chooses not to offer coverage ($2,000 penalty for each full-time employee); or
  • Provides a plan that does not meet certain minimum requirements ($3,000 penalty per employee who receives subsidized Marketplace coverage).

These new 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.

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 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.

A Deeper Look

Many employers want to furnish more coverage than a MEC plan provides. One solution is to offer MEC with a Limited Medical Benefit plan. This combination provides additional, restricted coverage for routine doctor visits and hospitalization. Again, this is not traditional health insurance; however, wrapped together, these policies are more appealing to the workforce and much more affordable than standard indemnity health plans.

Savvy businesses are presenting this combined option to employees now. The reason: By steering workers to the company plan today, it is less likely they will use a public marketplace when 2015 arrives.

After Jan. 1, even if a MEC plan is offered, employers will be assessed $3,000 for each employee who signs up for health coverage through a public Marketplace and qualifies for a federal subsidy. It should be noted that individuals must earn below a certain income threshold to obtain the subsidy, and many industries greatly impacted by the new ACA requirements tend to employ a lower-wage workforce with individuals who might be more likely to qualify for such a subsidy.

Employers who want to reduce their exposure to the $3,000 penalty must offer health coverage that is both affordable and provides a minimum value of benefits coverage. Typically, the employer will have to fund a large portion of this plan, making this an expensive proposition.

The Bottom Line

As we work with companies to conduct cost analyses, we are finding that nearly all of them will reduce their expenses by delivering this combination of MEC/Limited Medical Benefit plans versus paying penalties and sending employees to public Marketplaces. Some businesses, that were already devoting funds to employee benefits, are actually saving money by using this unique solution.

And, depending on expenditures and benefits previously provided, it can be good for both the company bottom line and workforce morale. Employees have the option to choose benefits through their employer and don’t feel abandoned.

If the costs associated with ACA present challenges to your company, talk to your benefits advisor now to determine the best course of action to navigate this challenging landscape. While it requires keen expertise to analyze the cost/benefit ratio and risk of various scenarios, for many, MEC/Limited Medical Benefit plans could represent the best solution yet to the challenges ACA presents.

About the Author

GoldfarbDavid Goldfarb is a Managing Principal of Digital Benefit Advisors (DBA), the largest employee benefits-only consulting firm in the country, specializing in benefits consulting for mid-sized businesses.  DBA brings together all the elements required for game-changing industry innovation that transforms the benefits experience for organizations and their employees. Mr. Goldfarb holds a Bachelor of Arts in Corporate Communications from The University of Texas at Austin and resides in Dallas with his wife Kerri, his daughter Eliza, and newly arrived twins Caroline and William.

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  • September 5, 2014

    Appreciate the emphasis on the fact these MEC plans cover virtually nothing (preventive care only, no hospitalization or ER or doctors or prescriptions) and that they don’t exempt the employer from the $3K per FT employee penalty.

    The biggest problem with these plans is you cannot just offer them to a limited subset of your 30 hr/wk workforce. There are discrimination rules under cafeteria plan testing that would likely not be satisifed if you offer the traditional plan and employer contributions to your highly compensated workforce while giving your hourly workforce an MEC plan with a different contribution structure. And when non-grandfathered insured plans become subject (someday) to the new §105(h) nondiscrimination rules, the “rich plan to the rich and MEC plan to the rest” approach will be completely impermissible.

    The only long-term approach that might work is to offer the traditional heath plan with employer contributions to everyone (do not exclude the hourly workforce) and, if desired, offer an MEC or an affordable MV plan alongside it to everyone (do not exclude the highly comp’d)…but even then if §105(h) rules require utilization testing, they might still fail if the majority of the highly comp’d take the rich coverage and the majority of the hourly take the MEC or affordable MV coverage. The penalty for §105(h) failure for insured non-GF plans is $100 per participant per day, or $36,500 per plan participant per year. I’d say that is less favorable than $2,000 (indexed) per FT employee per year.

    KC
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