Minimum Essential Coverage– How it Mitigates Employer Risk

Large employers nationwide grapple with the challenges imposed by the Affordable Care Act’s Employer Mandate since its inception. Rising health insurance costs compounded by the ACA requirements are forcing employers and their advisors to be creative in mitigating their risk annually. While many Applicable Large Employers (ALEs) successfully secure traditional group medical coverage, many still struggle with compliance, prompting them to seek alternative solutions. There are many barriers in complying with the ACA ALE mandate, such as health insurance participation requirements, the financial strain of annual group rating, or canceled policies resulting in non-renewal, to name a few.

Employers categorized as ALE face the need to provide affordable employer-sponsored health insurance plans that provide at least minimum essential coverage (MEC), and minimum value, and must be affordable for their employees with costs not exceeding more than 8.39% of their annual wage. ALEs must make these offers of coverage to 95% of their full-time employees or more under the mandate.

The complexity of the process itself can become overwhelming for businesses trying to stay compliant with the mandate. Employers and their advisors must actively seek strategic solutions to ensure compliance without compromising their financial stability. Here we explore two strategic solutions and how they can assist with meeting part or all of the ACA mandate.

Minimum Essential Coverage – The Basics

Minimum Essential Coverage plans, commonly known as “skinny plans,” have been a longstanding option, particularly in industries with lower-wage sectors. These plans offer limited protection coverage, meeting specific preventive and wellness-related requirements under the Affordable Care Act (ACA) and ERISA. While MEC plans can be cost-effective and satisfy a portion of the ACA’s large employer mandate, they come with both advantages and disadvantages.

Employers with over 50 full-time equivalent employees offering MEC plans can avoid a portion of the ACA’s employer mandate penalty (Part A is known as the sledgehammer penalty in 2024 it is $2,970 for each full-time employee minus the first 30), making them an appealing option for industries with low-wage earners and participation issues.

Advantages of Minimum Essential Coverage Plans

Large Employer Mandate Compliance: Businesses with over 50 employees providing MEC plans satisfy a portion of the ACA’s large employer mandate, mitigating the risk of penalties.
Tax-Deductible Contributions: Employer contributions to MEC plans are tax deductible.
Cost-Effective: MEC plans are less expensive than traditional group health insurance due to their minimal coverage.
Flexible Premium Payment Options: Premiums can be paid by the employer, the employee, or co-funded.
Limited Participation Requirements: Most MEC plans have fewer participation requirements if any at all making them an attractive option for employers.

Considerations for MEC Plans

Limitations on Coverage: MEC plans may not shield employers from the full ACA penalties (MEC shields from the sledgehammer penalty but not Part B) for not offering affordable coverage providing minimum value.
Employee Reception: MEC plans may not be well-received by employees on their own; combining them with other policies may enhance overall coverage satisfaction.

Considering the limitations involved in offering MEC plans, employers can combine them with complementary coverage, such as a limited medical plan, to provide additional benefits like routine doctor visits and hospitalization. This approach addresses the basic benefits required under the ACA while offering more comprehensive coverage.

Is ICHRA a Better Solution for ALEs?

The Individual Coverage Health Reimbursement Arrangement (ICHRA) offers a versatile solution for employers of all sizes. Large and small employers can leverage this innovative approach to provide their employees with a tax-free benefit. While small employers can choose if they would like to make their ICHRA affordable, ALE’s do not have that luxury.

Both minimum essential coverage and minimum value are integral components of ACA Individual Health Insurance plans and are the foundation of the Metal Plans found in the marketplace. Remarkably, ICHRA can fulfill all the Employer Mandate requirements outlined by the Affordable Care Act. If certain basic affordability criteria are met, merely offering an ICHRA satisfies the entirety of the mandate. (See ICHRA for Applicable Large Employers for more information).

To clarify, by providing an Affordable ICHRA to all full-time employees, the offer of coverage was made, participation does not factor in because as an ALE you fulfilled the requirements stipulated by the ACA. This satisfies both Part A (ACA metal plans contain both MEC and minimum value) and Part B, the affordability portion of the ACA Plan.

Not providing an affordable plan is where ACA Part B penalties kick in and for 2024 are $371.66 per month ($4,460 per year) for every employee who meets all the following criteria:

Worked 120 hrs. in that month.
Was not Offered an Affordable Minimum Value group plan.
The employer purchased a state or federal exchange plan.
The employee received an Advanced Premium Tax Credit, ACA Subsidy, or discount

Advantages of Affordable ICHRA plans

Large Employer Mandate Compliance: An Affordable ICHRA plan will satisfy the employer mandate completely.
Significant Employer Savings: No matter the size of the employer, time after time has proved that employers would save significantly over a group health plan, allowing them to pay more in wages, bonuses, and additional benefits.
Cost Management: ICHRA allows employers to control their healthcare costs.
No Participation Requirements:ICHRAs are all about choice, and employees can choose to participate or not, and the employer will still be compliant with offering an affordable group health plan.
Employers No Longer Choose the Health Insurance Plans: Large employers do not have to wait and guess what plans and rates will be best for their entire employee population. Employees chose for themselves.

Considerations for ICHRA Plans

ICHRA is a Group Health Plan: This means that HIPPA, ERISA, COBRA, ACA, and PCORRI compliance need to be followed making self-administration a challenge. Having a partner such as Flyte for administration eases this compliance burden.
Employee Learning Curve: Switching from a group health plan to an ICHRA, there will be challenges. Employees are now responsible for their health insurance shopping and payment; this can be a significant change for them.
Employee Education: ICHRA Education is key, employees will have more to do to receive their reimbursement. For those unfamiliar with HRA’s, the reimbursement process will need to be clarified.
Employee Health Insurance Policy Shopping: Employees can shop for their plans through marketplaces, brokers, third party vendors, or directly through carriers. Employers cannot steer them towards health plans or carriers.

Staying compliant with ACA regulations and providing competitive health coverage requires employers to navigate the complexities of the ACA Mandate. ALEs can mitigate their risks by implementing a MEC Plan that meets Part A of the ACA mandate or by offering an affordable ICHRA Plan that meets the ACA ALE’s entire mandate (both Part A and B).

Working with Flyte’s team can help relieve the responsibility of constantly keeping track of regulatory modifications and adjusting strategic plans. Our team strives to discover a well-rounded approach that prioritizes ACA compliance and the welfare of workers to guarantee the ongoing health and financial stability of the company and team members.

Part three in a three-part series on navigating ICHRAs for Applicable Large Employers.