Since the introduction of the Affordable Care Act (ACA), many employers have struggled to navigate its difficult requirements. One key ACA provision is minimum essential coverage (MEC), which affects what health plans must include to meet ACA requirements for certain employers. There are several factors that determine what qualifies as minimum essential coverage, which can make it difficult to understand which health plans meet ACA standards.To fully understand one of the key employer responsibilities under the ACA, this article will walk through what minimum essential coverage means, what plans qualify as MEC, and how MEC eligibility differs from minimum value and affordability eligibility.
What Is Minimum Essential Coverage?
Minimum essential coverage refers to the ACA requirement for offering, at the very least, a qualified health care plan to employees.
An MEC plan must provide the fundamental care for an individual/employee as understood by the Department of Health and Human Services (HHS).
To be considered an MEC plan, it must include the following coverage:
- Preventive care, including annual physical exams, routine immunizations, and screenings
- Certain primary care services, such as treatment for chronic conditions
- Access to telehealth
- Certain wellness benefits, such as mental health coaching
Typically, an MEC plan is not a comprehensive health care plan, but it does cover general health-related needs, which allows the plan to qualify as health insurance.
For employers, MEC plans are top-of-mind for maintaining compliance with ACA requirements.
The ACA specifies that Applicable Large Employers (ALEs) must offer MEC plans to at least 95% of their full-time employees and their dependents. Additionally, employers must allow employees and their dependents to enroll at any time during their employment cycle.
An ALE is considered any employer with 50 or more full-time employees.
ALE-sponsored health plans must qualify as an MEC plan or be approved as an option under Section 5000A(f). If not, the employer risks receiving tax penalties.
MEC Plan Examples
An MEC plan can be considered any of the following:
- Employer-sponsored programs such as standard group coverage, retiree plans, and COBRA plans
- Marketplace plans, which include individual health insurance bought through the government-run program under healthcare.gov
- Other government programs such as Medicare (Part A, Advantage, etc.), certain Medicaid programs, CHIP, TRICARE, and veterans’ health care
For clarity, here are examples of insurance plans that would NOT qualify as an MEC plan:
- Standalone dental or vision plans
- Workers’ compensation, disability, or accident-only policies
- Any limited-duration health insurance policies
- Non-traditional or supplemental policies, including medical discount cards (GoodRx, for example), critical illness coverage, or hospital indemnity coverage
Differences Between MEC, Minimum Value, and Affordability
For a full understanding of ACA compliance when offering employer-sponsored health plans, it’s essential to know the difference between what the legislation defines as “minimum essential coverage”, “minimum value”, and “affordability”.
Understanding what each term means and how employers should tackle these responsibilities could save the business from thousand-dollar penalties.
What is Minimum Value Under the ACA?
Minimum value (MV) is defined as an employer-sponsored plan that covers at least 60% of an employee’s total expected healthcare expenses and offers substantial coverage for inpatient hospitalization and physician services.
Combined with MEC, both definitions of health plans make up the Employer’s Shared Responsibility Provision (ESRP).
When an ALE fails to meet the health plan requirements from either or both MEC and MV, the ESRP kicks in as a tax penalty to the employer.
What is Affordability Under the ACA?
“Affordability” is another ACA compliance standard that employers need to know to avoid tax penalties.
Unlike MEC and MV, which define what a plan should include, affordability simply refers to the financial accessibility of an employer-sponsored health plan to employees.
Under the ACA for 2026, employer-sponsored health plan premiums cannot exceed 9.96% of an employee’s monthly total household income or else the plan is deemed unaffordable and subject to tax penalties.
The income rate will be adjusted to 10.22% of total household income for 2027.
ACA Compliance Requirements Regarding MEC Plans
Even if an employer offers a qualified MEC plan, it may not absolve them of potential tax penalties that may arise.
A key part of complete employer compliance with the ACA involves having an MEC plan meet both the standard definition, as outlined by the HHS, AND meet both the minimum value (MV) and affordability requirements. An employer who meets only part of the three ACA compliance requirements may see a tax penalty.
Penalty A
For MEC plans specifically, maintaining a qualified MEC plan will help employers avoid the tax penalty known as Penalty A.
Penalty A directly correlates with the requirements of an MEC plan, meaning an ALE must offer MEC to at least 95% of full-time employees or else they receive the penalty. The penalty amount is $2,970 annually for each full-time employee minus the first 30 employees.
Penalty B
The other penalty under the ESRP is what’s known as Penalty B. Having an MEC plan alone will NOT bypass this penalty, as it directly relates to the minimum value and affordability requirements under the ACA.
To avoid Penalty B, an ALE would need to offer a health plan that:
- Covers 60% of healthcare costs; and
- Does not exceed 9.96% of an employee’s total household income in premium costs
The penalty amount is $4,460 annually for each employee.
If an employer wants to avoid both Penalty A and Penalty B, an ALE must be completely compliant with MEC, MV, and affordability ACA requirements.
Frequently Asked Questions
Maintaining Compliance With ACA
As health insurance plan premiums consistently rise year-over-year, ACA compliance has become an even bigger challenge than ever before.
Employers are making cautious decisions when navigating employee benefits during open enrollment to balance costs while offering the best possible health insurance value.
While small employers may experiment with voluntary benefits to curb rising health insurance premium costs, employers that qualify as ALEs will have to carefully balance ACA penalty amounts and insurance premiums without breaking the bank.
To relieve the stress and potentially reduce the costs of managing ACA employer responsibilities, leveraging an ACA Compliance Manager helps not only with reporting key forms to the Internal Revenue Service (IRS), but also keeps employers up-to-date with ACA legislation and the latest updates that go into effect. With a full-suite Human Capital Management platform, employers can also easily manage benefits administration during open enrollment for total employee benefits management.
Still having trouble understanding the complex ACA requirements? We understand how difficult it can be to manage, so feel free to contact us today or schedule a compliance check-up and speak with an HR expert who can guide you through MEC plans and general ACA compliance.
