The Affordable Care Act (ACA) creates employer responsibilities that carry with it significant financial implications for the business. Specifically, the law requires businesses, and controlled groups of corporations, with 50 or more full-time or full-time equivalent employees to offer affordable health insurance to full-time employees or pay an assessment. Fees, or penalties, are assessed if the employer chooses not to offer coverage (Tier 1) or the employer offers coverage that does not meet minimum requirements (Tier 2). This new liability is often referred to as “Pay or Play”.1
For the affected businesses this translates into a potentially larger population of employees who must be offered and may elect, coverage under the employer’s plan. Neither the cost of paying the penalty nor offering coverage may be financially palatable to the business.
What is a MEC plan?
A Minimum Essential Coverage (MEC) plan is a health plan that meets the ACA requirements
for all health plans. Under ACA, all health plans must contain comprehensive coverage for preventative care, with no cost-sharing, and cannot contain any annual or lifetime dollar limits on services. The MEC plan satisfies the employer’s requirement of offering a health plan and avoids the “Tier 1” penalty. It provides a more cost-effective option for those employees who aren’t in need of extensive coverage.
In order to address this new liability, many employers are considering the adoption of a Minimum Essential Coverage (MEC) plan. The MEC plan strategy is a financial solution designed to satisfy an employer’s basic responsibility while managing some of the associated costs.
What are the Benefits of Offering Minimum Essential Coverage? | ||
For the Employer (Must have >51 benefit eligible employees) | For the Participating Employees
• Satisfies individual health coverage mandate • Provides affordable basic level of coverage • Preventive/Wellness coverage at no cost • Optional supplemental coverage offers additional plan benefits | |
• Manages “Tier 1” risk by offering ACA-compliant coverage • Better cost management since employer funding is optional • Preserves existing tax benefits of offering a qualified health plan • Establishes baseline for imple- menting parallel strategy that allows the offering of more robust traditional healthcare coverage | ||
Note: An individual who is offered and or enrolls in a group sponsored MEC plan may still enroll in a qualifying health plan via the public marketplace. Should that individual qualify for, and receive a subsidy to offset the cost of coverage, their employer may be responsible for the “Tier 2” penalty.2 | ||
A benefit portfolio strategy that includes offering Minimum Essential Coverage offers many employers in specific industries a tool that addresses a substantial financial liability. This solution is likely not applicable for every employer, but for some, the pluses are enormous.
Your OneDigital advisor is prepared to assist you with further understanding the concept and its impact on your business. Contact us today for a complete evaluation of how this strategy applies to your business.
1 IRC Section 4980H(a) with cross-reference to IRC Section 5000A
2 IRC Section 4980H(b)