Minimal Essential Coverage and Benefits Packages for Unique Business Owners

Mary Thompson, Capstone Brokerage President, May 24, 2016

As the implications of health care reform become more apparent, large employers in the U.S. are increasingly grappling with coverage options to avoid penalties.

One continuing issue is the problem that health care reform poses for the staffing industry and similar employers. This type of business may find they are now obligated to offer health coverage to relatively short-term and employees who work variable hours. This will continue to be a learning curve for companies such as temp agencies.

One option some employers are looking at is to offer a “skinny” or non-minimum-value plan (also referred to as a “minimum essential coverage” or “MEC” plan). This group health plan provides medical care but may not satisfy the 60 percent minimum actuarial value threshold under the ACA, which mandates plan participants pay no more than 40 percent of covered medical expenses.

Now, if an employer offers a plan that is not minimum value, an employee may apply for a federal subsidy or tax credit for coverage. If a federal subsidy is purchased through a public health care exchange it may trigger a penalty of $3,240 per each full-time employee receiving a subsidy/credit. This penalty would be lower than the penalty associated with not offering any health plan at all (the “play or pay” employer mandate’s $2,160 penalty times every full-time employee).

Non-minimum-value plans are starting to make their way into the market as a viable alternative to staffing firms and other low-wage, high-turnover companies. The non-minimum plan idea allows employers to satisfy the ACA’s regulations to avoid penalties and will meet coverage requirements. Thus, avoiding the hefty penalty associated with that option. This will minimize the financial risk of not offering any coverage at all.

Employees that accept the “skinny” plan, will not be penalized under the individual mandate’s tax penalty in effect currently. Under the understanding that they do in fact have coverage making this scenario a possible win for both employee and the employer.

Skinny and Not-So-Skinny Choices

Some employers are using a modified version of this strategy. These employers offer employees two options:

(1) a skinny plan, and

(2) a richer option with a minimum actuarial value over 60 percent and a premium contribution cost just barely meet the ACA’s 9.5 percent wage threshold, which few low-income employees are expected to take because of the cost. This strategy enables employees to opt for the skinny plan they can afford, while the offer of the richer option immunizes the employer from the “play or pay” penalties.

A third strategy is to simply offer the richer option and allow it to be un-affordable. For example, the plan could be offered on a fully contributory (i.e., employee pays all) or nearly fully contributory basis. This strategy avoids the “no offer” penalty, although the employer is still liable for the “un-affordable” penalty, but only with respect to those employees granted a premium subsidy or tax credit.

Keep in mind, these strategies are aggressive, but within the scope of the Affordable Care Act. Having an Affordable Care Act educated Insurance Broker that specializes in maintaining Minimum essential coverage would be extremely beneficial for companies that provide a staffing service or per diem employees. Contact your insurance broker with any questions you may have pertaining to Minimal Essential Coverage.