In the first part of this series, we broke down the basics of health plans under the Affordable Care Act (ACA also known as ObamaCare). This time, we are going to focus on some of the terminology that is wreaking havoc on employers, employees, and agents alike in determining compliance under the ACA.
Three definitions come up on a recurring basis right now, and there is a lot of conflicting information in the media causing opinions to mix with the facts. Keep in mind, without thoughtful consideration to these areas, all parties could face monumental fines and penalties. Whether it’s $2,000 per employee, $3,000 per employee, $100 per employee per day, or E&O claims, the decision should be yours to make with all the information available, so you aren’t surprised by unknown exposures.
First, let’s look at Essential Health Benefits, which are also referred to as EHB in documentation.
-Under ACA, Essential Health Benefits are defined as a set of health care service categories that must be covered by certain plans starting in 2014.
-Insurance policies must cover these benefits in order to be certified and offered in the Health Insurance Marketplace.
-By January 1, 2015, large groups with more than 100 employees are required to have plans in place for their workers with Essential Health Benefits, and at a price that doesn’t exceed 9.5 percent of the employee’s annual gross taxable wages.
-If these conditions are not satisfied, there are potential penalties (or imposed taxes) ranging from several thousand dollars up to half a million or more. (26 U.S. Code § 4980D)
The Essential Health Benefits’ 10 core health benefit categories are:
- Ambulatory patient services
- Emergency services
- Maternity and newborn care
- Mental health and substance use disorder services, including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventative and wellness services as well as chronic disease management
- Pediatric services, including oral and vision care
Next, let’s look at Minimum Essential Coverage, which is also referred to as MEC in documentation.
-Under ACA, Minimum Essential Coverage is defined as the type of coverage an individual needs to have to meet the individual responsibility requirement under the Affordable Care Act. This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other types of coverage.
-MEC Plans are also known as “Skinny Plans,” and typically include the preventative and wellness services only, leaving individual employees vulnerable to thousands in bills if they’re hospitalized.
-MEC Plans provide required benefits for employees to avoid the personal penalty imposed if they do not have required health insurance under ACA regulations, but provide only a limited level of protection to employers regarding the imposed fines under ACA regulations.
-Employers offering MEC Plans should communicate that these are not robust and should not be confused with Essential Health Benefits.
Why then are so many employers looking to this MEC option for benefits, knowing it is meeting only a bare-bones set of requirements? Probably because the cost can be as low as $50 monthly, and this is far less than the qualified health plans with all the Essential Health Benefits. Also, many employers are being told this practice avoids the ACA penalties. That is only partially true, and can cause a tremendous amount of E&O claims in the years to come for agents touting this information to their clients.
While employers choosing to sponsor a MEC Plan for employees pass one test for Minimum Essential Coverage, they flunk the ‘minimum value’ tests, and the employer penalty might still be $3,000 for each employee enrolling in subsidized exchange coverage. That’s likely to be much less than the fine for not offering Minimum Essential Coverage, which is $2,000 for nearly every employee in the company, even if most don’t buy policies in the exchanges.
Offering MEC Plans in lieu of those with all Essential Health Benefits may help the employers shield themselves partially as far as the fines that could be imposed on the company. MEC Plans may help the employee avoid an individual penalty, but they’ve left the employee exposed if a catastrophic event occurs. This may be the goal of the client due to excessive costs of healthcare, but it is imperative that all parties understand what their risk is in any structure with a MEC offering, because the exposure is much higher than many will expect it to be.