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by Heath Drulman, BrokerWorld Magazine, June 2016 Issue
Health insurance premiums for small firms (3-199 workers) have seen a 25 percent increase since 2010, with the average family premium rising from $13,250 to $16,625 in 2015.1
With rising costs it comes as no surprise that, post-ACA, employers are struggling to afford and provide health plan coverage for their employees. In addition, since its implementation, employers are challenged to keep up with the ACA requirements like reporting.
Fortunately, employers looking to offer coverage to their employees that meets cost constraints and potentially avoids certain penalties can do so with options like self-funded Minimum Essential Coverage (MEC) health plan designs. Offering these plan designs as part of your product portfolio can help you stay competitive in today’s marketplace.
Why MEC Appeals to Employers
Self-funded minimum essential coverage plan designs provide employers with a low-cost alternative to major medical coverage plan designs, and offer preventive care benefits to fulfill the ACA individual requirement to maintain minimum essential coverage. With self-funding, employers can receive a refund when their group’s claims are lower than expected and funded. And, with the stop-loss insurance, employers have aggregate claim protection.
Determining When MEC Is a Potential Fit
Employers who are key candidates for offering MEC plans may include those with a population of mixed income levels and/or low participation in a major medical plan. These employers could offer both a major medical plan and a MEC plan, allowing their employees to choose a plan that best fits their budgets and needs and avoid the ACA individual mandate penalty—also known as the Individual Shared Responsibility Penalty (ISRP).
Individuals who don’t fulfill the mandate, including having a gap in coverage, are subject to pay the penalty. In 2015, for those filing for 2014, taxpayers filed about 6.6 million returns reporting the ISRP.2
Among uninsured people who are eligible for an Affordable Care Act Marketplace plan, the average penalty for remaining without coverage in 2016 would be $969 per household, 47 percent higher than the 2015 estimated average of $661. Those who are eligible for premium subsidies in ACA Marketplaces face an average household penalty of $738 in 2016 if they remain uninsured, while people not eligible for subsidies face an estimated average penalty of $1,450.3
Employees who have selected employer-sponsored coverage have not gone to the public exchange to purchase coverage; therefore, the employers have avoided a penalty.
In addition, employers must meet the Employer Shared Responsibility mandate, also known as the Employer Mandate, requiring employers with a certain number of full-time employees in the preceding year to provide minimum essential coverage to their full-time employees, and their dependent children to age 26, that is affordable and provides minimum value or face potential penalties.
The Employer Mandate introduces methods to determine which employers are subject to the rule and how to calculate potential penalties. For instance, for 2016, if employers don’t comply with offering coverage they can be penalized up to $2,160 per each full-time employee after the first 30 full-time employees. The Employer Mandate does not apply to employers with less than 50 full-time employees and their equivalents. And, for 2016, if the minimum essential coverage offered by the employer doesn’t meet the affordability requirements, they can be fined $3,240 per year for each full-time employee that enrolls in an individual health plan on the Marketplace and received a premium tax credit or a cost-share reduction.
What Do MEC Plan Designs Cover?
The MEC plan designs include preventive care benefits and not major medical benefits, so benefits are limited. Preventive care services outlined by the ACA are covered at 100 percent when received in-network in accordance with federal law. These services differ for the adults, women, children and pregnant women, and could include health services like screenings that are used to prevent illnesses, disease and other health problems or to detect illness at an early stage.
Some MEC plan designs may include additional benefits, such as additional office visits, prescription drug coverage and telemedicine services; however, these additional benefits vary. It is important to note that these are additions and do not typically come standard with the MEC plan designs.
Minimum Essential Coverage (MEC)
When this mandate originated, the aim was to help ensure employees have the opportunity to enroll in coverage that is both affordable and in compliance with minimum value following the calculation methods defined by the ACA.
The mandate requires individuals to maintain minimum essential coverage for themselves and their dependent children, which could include a plan they purchased through the health insurance Marketplace, most individual plans bought outside the Marketplace, job-based insurance, public programs, etc., or they are subject to pay the Individual Mandate penalty.
Challenges Bring Innovative Solutions
Under the right circumstances, solutions like offering employees a choice of either a major medical or MEC self-funded plan design gives your smaller business clients the opportunity to provide their workforce an affordable coverage option, helping both employers and their employees avoid penalties and potentially providing employers with a refund. These plans may not be a fit for all groups, but it is important to be informed and educate your clients about how these plan designs work.
1 The Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits 2015 Annual Survey. http://files.kff.org/attachment/report-2015-employer-health-benefits-survey
2 National Taxpayer Advocate Reviews Filing Season and Identifies Priority Areas and Challenges Mid-Year Report to Congress. 7/15. https://www.irs.gov/uac/Newsroom/National-Taxpayer-Advocate-Reviews-Filing-Season-and-Identifies-Priority-Areas-and-Challenges-in-Mid-Year-Report-to-Congress
3 Average Individual Mandate Penalty to Rise 47 Percent to $969 in 2016 for Uninsured People Eligible for ACA Plans. 12/2015. http://kff.org/health-reform/press-release/average-individual-mandate-penalty-to-rise-47-percent-to-969-in-2016-for-uninsured-people-eligible-for-aca-plans
Author Heath Drulman has more than 26 years of insurance industry experience, 15 of which are in health insurance. Since 2000, he has marketed individual and group health plan designs in the southern United States. Currently, he is a district sales manager in Allen, TX, for Starmark and Trustmark Life Insurance Company group insurance lines of business. Drulman can be reached via email at Heath.firstname.lastname@example.org.