United States: The Affordable Care Act's Reporting Requirements For Carriers And Employers (Part 21 Of 24): Reporting For "MEC" Plans

Last Updated: December 15 2015
Article by Alden J. Bianchi

It took a while, but most employers and their advisors have finally gotten the hang of the Affordable Care Act's employer shared responsibility rules. That is, they understand generally that:

  1. "Applicable Large Employer Members" (i.e., each separate legal entity within a controlled group that collectively comprises an Applicable Large Employer) must make an offer of "minimum essential coverage" to substantially all of their full-time employees or face the prospect of a potentially very big penalty;
  2. If coverage is offered, but it is unaffordable or fails to provide minimum value, then the employer faces the prospect of a potentially (hopefully, maybe) not very big penalty; and
  3. If coverage is offered that is both affordable and provides minimum value, then the employer has no penalty exposure, but this approach might be costly.

When it comes to telling the government about compliance, however, not everyone has gotten the proverbial "hang-of-it," and many questions remain (at least enough to fill this blog from week-to-week). Most too have heard that the IRS has announced that it will be applying a "good faith" standard. While they get that this is a "good thing," many are not sure why, exactly. (Trust me, it's a good thing.) And there are of course a cohort of presumably small but indeterminate size employers that remain unaware of the rules or simply assume that their consultant or payroll service has it covered.

The lingering reporting-related questions appear to cluster around full-time employee determinations, offers of coverage, and eligibility, participation and coverage. This post examines issues relating to coverage, both under the rules governing the reporting of minimum essential coverage and under the employer shared responsibility rules, with a particular emphasis on "MEC plans."

Minimum Essential Coverage

In the context of the ACA, the term "minimum essential coverage" has come to be used in four different ways:

  1. Under Code 5000A, U.S. taxpayers and green card holders must have minimum essential coverage or pay a tax penalty unless an exception applies;
  2. Under Code 36B, low- or moderate-income income individuals who might otherwise qualify for premium tax credits from a public insurance exchange are rendered ineligible for subsidies if they have other minimum essential coverage (or are eligible for minimum essential coverage under an employer-sponsored group health plan if the coverage provides minimum value and is affordable);
  3. Under Code 4980H, applicable large employers face exposure for assessable payments for failing to offer minimum essential coverage to substantially all of their full-time employees; and
  4. Vendors, promoters and some carriers have created and established for sale in the group market a preventive-services-only plan that has come to be known as a minimum essential coverage or MEC plan. Unlike the first three uses of the term MEC, this latter use is purely colloquial and market-driven. For the balance of this post, we will refer to preventive-services-only plans as "MEC plans."

The term "minimum essential coverage" can be confusing, since it refers not to the content of the coverage but to its source. Individual and group market coverage can qualify as minimum essential coverage, as can coverage under a governmental program such as Medicare or Medicaid. There is an important distinction to be made here, however. When coverage is offered through a public insurance exchange, that coverage must include a list of 10 essential health benefits which result in an aggregate benefit that qualifies as "minimum value." (For an explanation of minimum value, please see our previous post on the subject.)

In contrast, applicable large employers are not required to offer minimum value coverage, though there can be consequences for not doing so. As we noted above, an employer that offers minimum essential coverage that does not provide minimum value faces penalty exposure, though of a likely smaller magnitude than would otherwise be the case if the employer failed to offer any coverage. MEC plans do not provide minimum value.

The motives for choosing to offer MEC plans are two-fold:

1. Economic

There are instances in which the offer of MEC is simply the cheapest way to comply with the ACA's employer shared responsibility rules. MEC coverage is less than desirable, since it only covers preventive services. Despite that serious drawback, however, certain employees may benefit from the MEC coverage, since it satisfies the ACA individual mandate. So an employee with MEC coverage is not subject to tax.

2. Practical

Minimum value coverage may be unavailable or available only at exorbitant rates. This is a not uncommon occurrence in industries with low-wage, high turnover employees, who before the ACA were either not offered coverage or were offered coverage under "mini-med" plans. While some express concern over the failure on the part of mainstream carriers to develop and make available affordable products for this market, it should come as no surprise. This market segment is rife with adverse selection, and carriers are only now getting reliable data on actual take-up rates and claims experience.

Because MEC plans are group health plans, they must satisfy the ACA insurance market reforms. As a practical matter this means that a MEC plan must:

  • Not impose annual or lifetime limits on essential health benefits (i.e., the items and services within at least the following 10 categories: ambulatory patient services; emergency services; hospitalization; 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; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care);

NOTE: Most MEC plans are self-funded. Self-funded and large group insured plans are permitted to impose dollar limits on benefits that are not essential health benefits, and they can also apply non-dollar limits on essential health benefits. These plans must use an authorized definition of essential health benefits to determine which of the benefits they provide can be made subject to annual or lifetime dollar limits. What constitutes essential health benefits is determined state-by-state based on a "benchmark" plan. The benchmark can be designated by the state or adopted under a default rule. Self-funded plans have some latitude on the selection of a benchmark plan.

  • Cover children to age 26 where the MEC plan coverage includes dependents;
  • Comply with the ACA bar on rescissions of coverage;
  • Not exclude participants based on a pre-existing condition; and
  • Cover preventive services. Preventive services for this purpose means coverage for a wide range of health preventive and screening services. There are some 63 distinct preventive services that must be covered without the enrollee having to pay a copayment or co-insurance or meet a deductible.

Though not required, MEC plans are often bundled and sold together with hospital or fixed indemnity coverage a/k/a "excepted benefits" in the parlance of the ACA and prior law.

Reporting MEC vs. Minimum Value coverage

  • Code 6055: Reporting of Minimum Essential Coverage (Forms 1094-B/1095-B)

Every provider of Minimum Essential Coverage must report coverage information by filing an information return with the IRS on Form 1094-B and furnishing a statement to individuals on Form 1095-B. Where MEC plan coverage is fully-insured, the reporting obligation rests with the carrier. But where MEC plan coverage is self-funded—which is by far the most common approach—the coverage is reported by the employer on Part III of Form 1095-C if the employer is subject to the ACA employer shared responsibility rules, i.e., an applicable large employer member. Many employers offering MEC plan coverage are new to self-funding. This filing obligation could come as a surprise.

  • Code 6056: Reporting by ALE Member (Forms 1094-C/1095-C)

Offers of coverage that qualify as minimum value are coded on Form 1095-C, Line 14 using Codes 1A through 1E. These codes variously identify the recipients of the offer of coverage between and among the employee, his or her spouse, and dependents. The significance of these codes is that the employer may avoid exposure under Code § 4980H(b) if the coverage is also affordable. That this is the case is reported on Lines 15 (which permits the IRS to verify whether the coverage is affordable) and 16 (which discloses that coverage was elected or points the IRS to the reason why the employer is not liable for an assessable payment under Code § 4980H(b) with respect to the particular employee).

Offers of MEC plan coverage have their own reporting Form 1095-C, Line 14 series-1 indicator code, Code 1F (Minimum essential coverage NOT providing minimum value offered to employee). Where Code 1F applies, Form 1095-C, lines 15 and 16 are left blank, thus signaling to the IRS that the employer may be liable for an assessable payment under Code § 4980H(b) (i.e., the "potentially (hopefully, maybe) not very big penalty") with respect to the particular employee.

The benefit of a broad-based offer of MEC coverage appears on Form 1094-C, Part III, Lines 23 to 35, column (a), wherein the employer reports that it "offered minimum essential coverage to at least 95% of its full-time employees and their dependents." As a consequence, the employer is not liable for penalties under Code § 4980H(a) (the "very big" penalty). Under a transition rule that applies in 2015, the 95% threshold is lowered to 70%. An employer indicates that it is taking advantage of this relief on Form 1094-C, Part III, in Lines 23 to 35, Column (e).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions