Minimum Essential Coverage

Minimum essential coverage is a statement used in the Affordable Care Act (ACA) that refers to a minimum level of coverage that employers must provide to their employees and that families must obtain. It is under a section called the “Shared Responsibility for Health Care.“

When employees or families do not have the minimum essential coverage (MEC) required, there are going to be “shared responsibility fees” charged. The required health insurance in this part of the ACA provides rules for employers concerning how much of the premium that the employer must cover and the amount of out-of-pocket costs that a health plan must cover.

The minimum essential coverage provides guidance as to the types of coverage that must be supplied by the employer or family in order to meet the shared responsibility and avoid the fees. Any plan offering major medical, for instance, must provide 10 specific benefits.

The benefits were structured to change in 2014. At that time, each health plan offered 10 "essential health benefits" (EHBs). They also had a series of metallic levels that started providing a minimum of 60 percent of the “actuarial value,” or of the annual costs for each person. Plans were also offered for catastrophes for individuals who were under 30, but they had fewer benefits.

ObamaCare was set up so that people could obtain minimum essential care and avoid the fee established in the ACA. The plan required that the health plan must be maintained for the entire year. Not having it meant that you must obtain an exemption, or be required to pay a fee for every month you do not have it. There is an allowance of going without it for three consecutive months a year, which was caused by a coverage gap exemption. 

Whether or not you have the minimum essential coverage is reported on your Federal tax forms annually. It is reported by the month and if you have coverage for any dependents.

The ACA defines the minimum essential coverage as being what most group health plans include that are offered by large or small employers, or by health coverage offered by the government. When a health plan only offers “excepted benefits,” it does not qualify as MEC. This type of plan only provides benefits that are limited in scope and they are exempt from many of the requirements given by the ACA and HIPAA.

Certain other plans do qualify as MEC, such as plans that provide medical assistance to refugees and Medicare Advantage plans. Starting on January 1, 2014, the Individual Mandate requires that most people get and maintain a policy that meets Minimum Essential Coverage for their family and themselves, or they must pay a fine.

Individuals can get plans that meet the MEC through plans offered by their employer, the MarketPlace, or other sources in order to comply with the Individual Mandate. Obtaining a plan will enable them to avoid the tax.

Starting on January 1, 2015, the Employer Mandate will begin. This Mandate (also referred to as Employer Shared Responsibility) will mean that employers will pay considerable fines if as many as 95 percent of their employees who are full-time do not meet at least the MEC. In order for an employer to avoid this penalty, large employers will have to provide coverage that not only meets MEC, but it also must be affordable and provide Minimum Value.

Benefits and Minimum Essential Coverage Types

A benefit of the Affordable Care Act is that many new rules and regulations were made in the health insurance field enabling powerful changes that brought about new rights, benefits and protections for the consumer. Some health insurance plans are required to follow all of the new rules, but some plans do not need to.

Most of the plans offering major medical do follow the requirements of the ACA, which means that they meet the requirements of the ACA. MEC is based more on a particular source rather than on compliance with a specific rule or benefit. Avoiding the fee means you must meet the “minimum essential coverage” and keep it in force for the entire year. The MEC requirement applies to all Government insurance, job-based insurance and most other forms of private insurance.

Generally speaking, if you were able to hold on to your health insurance after the start of 2014, or if you bought major medical insurance from the marketplace, or were covered through work or by a public program, you most likely met the requirements of minimum essential coverage.

If you bought health care coverage through an employer, it meets MEC and provides you with:

  • Coverage for all current employees
  • Coverage for retired persons
  • Cobra continuation coverage that enables you to keep a policy in force for a limited time after leaving a job

Students going to college are eligible to get health insurance from their school. It will meet MEC requirements and will remain in force as long as you are enrolled.

Health insurance programs through the Government will also meet the requirements for MEC. They include:

  • Medicare – for those over 65 or disabled.
  • Medicaid – for poor people.
  • Tricare – for the military and their families.
  • Children's Health Insurance Program (CHIP) – covers children and pregnant mothers in families with low income.
  • Peace Corps volunteers' health insurance.

When you buy a policy personally from an insurance company, it will be different than what an employer offers in a group plan.

Reporting Minimum Essential Coverage

On your Federal income tax return, you will need to report which months you had coverage that met the requirements of MEC, and what dependents you had living with you. If you or your dependent did not have coverage for a month, or if you did not have an exemption, it will be necessary to pay a fine. It is called a Shared Responsibility Payment, and it is capped off at the level of the Bronze payment plan. This will need to be done for each month you did not have insurance.

When you buy a health plan that meets MEC, your plan provider will send you a form (1095-A, 1095-B, or a 1095-C) for your taxes. It will reveal which months you were covered and how much you received to assist you in costs. That form will be used to fill out Form 8962, which is the Premium Tax Credit (PTC), if you received any assistance in costs. Any other forms associated with your tax return need to be attached to your tax return, and the calculated Shared Responsibility Payment, when you indicate minimum essential coverage.

Understanding the Difference between Minimum Essential Coverage, Essential Health Benefits, Minimum Value, and Actuarial Value

Some of the terms found within the Affordable Care Act may seem similar and can result in some confusion. Every one of the terms carry different meanings and have different responsibilities to both employers and to families or individuals. They also carry different penalties, subsidies and taxes.

Minimum Essential Coverage provides fewer benefits than are found in the Essential Health Benefits (EHB). It enables an individual to obtain enough coverage to avoid having to pay the penalty tax. It also enables large employers to not suffer the penalty for being an employer who does not provide a proper health plan to the employees.

Essential Health Benefits refers to the 10 main benefits that every qualified health plan (QHP) must provide. When a group plan fails to offer an EHB, it most likely will still meet the MEC, enabling those covered to escape the tax for not meeting the required individual mandate.

Minimum Essential Coverage is also different than Minimum Value (MV). The Minimum Value refers to the comprehensiveness that a plan offers. An MEC, for instance, has a MV of 60 percent, which is the Actuarial Value. This means that an MEC pays a minimum of 60 percent of all benefits provided in the health plan in terms of actuarial value.

Even when a large employer does not offer a plan that will meet Minimum Value or affordability; it may still meet MEC, which allows the employee to avoid the penalty tax. “Affordability” refers to the cost that must be less than 9.5 percent of the employee’s income for self-only coverage.

Essential Health Benefits (EHB)

Although a health plan may not cover Essential Health Benefits, it may still offer enough benefits to meet the requirements of the Minimum Essential Coverage. The term Essential Health Benefits refers to the 10 different categories of the core benefits that a QHP must provide.

The Essential Health Benefits package will include at least 10 specific benefits and other services. It will also be specific about cost sharing, an adjusted community value, and minimum value. The 10 specific benefits include:

  • Emergency services
  • Lab services
  • Hospitalization
  • Rehabilitative services
  • Oral and vision care
  • Prescription drugs
  • Mental health and substance abuse care
  • Ambulatory patient services
  • Maternity and newborn care
  • Preventive and wellness services

One more important reason for the creation of Essential Health Benefits is that the ACA eliminates the imposition of annual or lifetime dollar limits on EHB.

Minimum Value (MV)

Health plans that offer a Minimum Value may still meet the requirements for MEC. Minimum Value ensures that policies provide suitable coverage above a threshold level. Because the plan must provide at least 60 percent of the actuarial value, it means that the employee will only be paying 40 percent or less for co-insurance, deductibles, copayments, and out of pocket expenses. The MV does not include the cost of the premium.

In 2012, when the ACA was written, the HHS found that nearly all health care plans at the time provided an actuarial value of at least 60 percent. Less than 2 percent of large employers were less than this amount.

Actuarial Value (AV)

The Actuarial Value of any health insurance policy is the proportion of medical expenses covered on average for people living in a standard population. This figure is compared to how much the insured might pay on average for additional costs, such as co-pay, deductibles, co-insurance, and expenses out-of-pocket. The AV is a measurement of how generous a health plan will be to the insured.

The AV does not consider the cost of premiums. It also does not take into account how broad a network is, its quality, or its customer service. With a 60 percent AV, it means that you will be paying 40 percent of all covered costs up until the time you reach your plan’s cost sharing or limit for out-of-pocket expenses.

Various Plans in the ACA

Health insurance companies provide various policies based on cost. Companies that provide policies for small groups and individuals are required to specify the Actuarial Value of all policies. Here are the metallic values of qualified policies:

  • Bronze and Catastrophic policies carry an actuarial value of 60 percent.
  • The Silver category policies equal an actuarial value of 70 percent.
  • The Gold category has an actuarial value equal to 80 percent.
  • The Platinum policy designation means that they carry an actuarial value of 90 percent.

All insurance plans must come within 2 percent of the Actuarial Value. A Gold plan, for instance, must pay between 78 percent - 82 percent of the covered costs. The greater percentage covered means that there will be a higher cost, but less in personal expenses.

Rules for Minimum Essential Coverage

Any health plan that provides minimum essential coverage must follow the ACA’s guidelines, including all rules, regulations, and it will have to provide all the benefits, protection, and rights in that plan.

It is important to understand that the term of minimum essential coverage refers to the source, rather than to the benefits offered. Sources include Medicare, Medicaid, TriCare, the Marketplace, and may be a little different with each source.

Some common rules do apply to all sources, but the differences are designed to ensure that all sources can provide minimum essential coverage. These may include:

  • A minimum of 60 percent for out-of-pocket expenses on all covered services.
  • A limit on annual deductible amounts and maximums for out-of-pocket costs.
  • Coverage cannot be rejected on the basis of anything except for the inability to pay.
  • Renewability must be guaranteed without consideration for health status.
  • Limits must be established on premium costs based on your age, use of tobacco, size of your family, and your location.
  • Must rebate the balance when using less than 80 percent of costs used for medical care and to better the quality of care given.
  • Must meet the requirements of providing a minimum of 10 essential health benefits.
  • Dollar limits cannot be put on Essential Benefits.
  • Minimum Value requirements must be met on average, a minimum of 60 percent of the total costs for covered issues.

If you need help in ensuring that you get a health insurance policy that provides minimum essential coverage, or if you are an employer that needs help in providing group insurance that meets the ACA requirements, you can post your legal need on the UpCounsel’s marketplace. UpCounsel will only use lawyers who have graduated from the top five percent of law schools such as Harvard Law and Yale Law, and who also have an average of 14 years of legal experience. Many of them have worked with or on behalf of such companies as Google, Stripe, and Twilio.