Let’s start with a fair question: “Why do I need to know these terms?”  The answer is that the IRS uses them over and over in regulations and in the instructions to Forms 1094 and 1095.  It is said that when IRS agents mediate, they chant “minimum essential coverage providing minimum value” again and again.  If things go bad in an audit, you can say the same phrase and the agent may fall into a trance.   

If you know what these terms mean, it’s less distracting, less intimidating, and you’ll know that 99% of the time, you can simply ignore them.  Every major medical group health plan administered by a reputable Minnesota third party administrator or insurer will provide MEC that meets MV. 

MEC means group health plan coverage that meets certain “market reform” requirements under the Affordable Care Act.  Every group health plan (except for plans that provide only “excepted benefits” – more on that later) must offer MEC to its employees and dependents. Under the ACA, the term “dependent”  excludes spouses.[1] You can still meet MEC if  you exclude spouses, but you’ll have a hard time retaining and attracting employees (most if not all public employers in Minnesota cover spouses).  To qualify as MEC, a plan must provide preventive care mandated by the ACA without cost-sharing.  If and to the extent that a plan offers one of the ACA’s ten essential health benefits (“EHBs”), it cannot be subject to annual or lifetime maximums.

Here is where the rules diverge for private and public employers.  Private employers are subject to ERISA, which preempts most state laws related to group health plans.  A private employer plan must always cover no-cost preventive care, but it may pick and choose between the 10 essential health benefits, or even exclude them, and will still provide MEC.[2]  But a public employer plan must follow state law benefit mandates, and all states require coverage for the 10 essential health benefits in one form or another (the type and scope of coverage may vary state-by-state).  The 10 essential health benefits are as follows:

A group health plan provides “minimum value” only if the plan’s share of the total allowed costs of benefits provided to employees is at least 60 percent.[1]  Because the ACA imposes annual out-of-pocket maximums, a plan that requires employees to pay 40% of each incurred charge will not qualify (i.e., if they have a million dollar claim, 40% will greatly exceed the out of pocket maximum).[2]  Instead, plan administrators and insurers use actuaries, men and women with magical mathematic skills (they remind this writer of Gandalf in the Lord of the Rings movies) to estimate whether the average out of pocket expenses for deductibles, copays and/or coinsurance are 40% or less than the total allowed cost of benefits. The calculation gets complicated, but a plan with “standard” features may use an online minimum value calculator published by HHS to confirm whether it meets minimum value. Plans with unusual or “nonstandard” features must obtain an independent actuarial certification that they meet minimum value.  

If an applicable large employer fails to offer self-only coverage to all full-time employees that (1) is Minimum Essential Coverage (MEC), (2) meets Minimum Value (MV), and (3) is “affordable” (i.e., the employee’s share of premiums does not exceed 9.5% (as indexed) of the employee’s household income, or more likely, complies with one of the affordability safe harbors), the employer will be subject to penalties under 4980H(b) (the “bad penalty”).  The bad penalty is assessed when an employee declines coverage, enrolls in MNsure, and qualifies for premium tax credits.  If someone turns down an offer of coverage and ends up receiving premium tax credits on MNsure, you might get a 226J letter from the IRS with proposed penalties.   If you’ve kept your ducks in a row, you won’t owe anything.  But seek help from your tax or legal advisors if you receive a 226J letter from our friends in DC.

D-1. Excepted Benefits. MEC does not include “excepted benefits.” Excepted benefits are not subject to the ACA and may be offered to employees who are not otherwise enrolled in the employer’s group health plan. They include the following:

D-2. Benefits that are not health coverage. The first category of excepted benefits includes benefits that are generally not health coverage. The benefits in this category are excepted in all circumstances and include the following:

• Coverage only for accident, or disability income insurance, or any combination thereof.
• Coverage issued as a supplement to liability insurance.
• Liability insurance, including general liability insurance and automobile liability insurance.
• Workers’ compensation or similar insurance.
• Automobile medical payment insurance.
• Credit-only insurance.
• Coverage for on-site medical clinics.

We’ve seen recent growth of online platforms that serve healthcare “niches” such as diabetes management, back pain management, substance abuse, fertility and family planning, cognitive behavioral therapy, weight loss, you name it. Some of these programs are fantastic and offer genuine value. 

The initial question for employers is whether an innovative new health-related program provides “significant benefits in the nature of medical care.” Telehealth services, for example, will generally offer significant benefits in the nature of medical care if a physician can diagnose and treat diseases and prescribe medication. If so, it will be treated as a group health plan subject to the ACA market reforms, such as offering specified preventive care services at no cost.[1]  It will also have to offer the 10 essential health benefits without annual or lifetime limits.  Because most of these special purpose programs do not meet these requirements, they will have to be integrated with your health plan in order to comply with the ACA, and they may not be made available to employees who are not enrolled in group health plan coverage through the employer (or the employee’s spouse’s employer).[2]  Insurance carriers and third party administrators sometimes refer to these programs in a derogatory way as “bolt-ons,” and may drag their feet because it creates more work for them.  Be assertive if you think it might help reduce health care costs.  You can adopt what’s known as a “wrap plan,” whether they like it or not, to ensure the new benefits are integrated.  We’re not going to go down that rabbit hole here, other than to suggest that you seek help from your tax and legal advisors before signing up for these programs.