What is a MEC Plan and How Does it Work?

Key Takeaways

A minimum essential coverage (MEC) plan is a form of healthcare that meets the minimum standards set by the Affordable Care Act (ACA).
An MEC plan usually offers basic coverage like preventive care, wellness-related tests, and common treatments.
MEC plans often prioritize affordability and provide fewer benefits and more limited coverage than expensive healthcare plans.
The Internal Revenue Service (IRS) can penalize an applicable large employer (ALE) if it does not offer MEC plans to 95% or more of its full-time workers.
Before 2019, individuals and families without a MEC faced a federal tax penalty, but that rule no longer applies.

The Concept and Workings of a MEC Plan

A minimum essential coverage (MEC) plan is a type of healthcare that meets the minimum standards established by the Affordable Care Act (ACA). A MEC plan is intended to offer members a basic form of healthcare with essential benefits like preventative services, discounts on prescriptions, and telemedicine options.

Usually, a MEC plan is more affordable than top-of-the-line premium health plans because it may provide fewer benefits and less coverage. Still, offering MEC plans to employees can help an applicable large employer (ALE), a business with 50 or more full-time or full-time equivalent (FTE) employees, avoid federal tax penalties and keep its employees healthy.

If you represent a small- or medium-sized business (SMB), it is important to understand how a MEC plan works, along with its benefits and drawbacks, to determine if it is the right healthcare option for you and your employees.

What Is a MEC Plan?

MEC stands for “minimum essential coverage,” and as its name suggests, a MEC plan satisfies the lowest level of healthcare coverage specified by the ACA. A MEC plan is a classification of health plans designed to give members access to fundamental benefits, such as preventive care and standard treatment services.

MEC plans usually focus on affordability and offer only the necessities, which allows them to keep their monthly premiums lower than health plans with more inclusive benefits and coverage. Still, MEC plans are a popular way to provide baseline coverage to businesses, individuals, and families simply looking for standard healthcare.

Offering health insurance coverage can benefit your SMB. So, if your business doesn’t currently offer healthcare to its employees, consider providing MEC plans to keep your team healthy, increase employee retention, and ensure compliance.

Examples of MEC Plans

The Centers for Medicare & Medicaid Services (CMS) accepts applications from healthcare carriers that want MEC recognition, so there is an ongoing list of national health plans that are recognized as MEC.

Additionally, any plan that falls under the following categories is considered MEC:

Employer-sponsored coverage, including retiree coverage and Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage.
Coverage purchased in the individual market, including qualified health plans offered through the Health Insurance Marketplace
Children’s Health Insurance Program (CHIP) coverage
Medicare Part A coverage
Medicare Advantage (MA) plans
Most forms of Medicaid coverage
TRICARE
Coverage for Peace Corps volunteers
Coverage under the Nonappropriated Fund Health Benefit Program
Some types of veterans’ health coverage offered by the Veterans Administration
Refugee Medical Assistance supported by the Administration for Children and Families

Purpose and Compliance

MEC plans offer a basic level of care and coverage that the ACA deems acceptable. These standard-level health plans have the potential to help keep their members healthy and safe from medical-fueled financial hardships.

MEC plans are viable healthcare options for individuals, families, and many types of businesses, but they are especially important for ALEs. If your business employs at least 50 full-time or FTE employees, you can face thousands of dollars in annual tax penalties for not offering MEC plans to enough of your employees.

As an SMB operator, it is best to consider the various MEC plans available to ensure that you give your employees the best, most affordable form of healthcare while keeping your business safe from penalization.

The Three Different Minimum Essential Coverage (MEC) Plans

When you zoom out, all MEC plans fall under one of three categories. Regardless of the categorization, each MEC plan is ACA-compliant and will help your business provide affordable employee benefits. However, knowing the differences that separate the following MEC plan categories is an excellent idea to help you decide which plans will work best for you.

Standard MEC Plans

A standard MEC plan is likely the most economical way to meet coverage requirements. The characteristics of a standard MEC plan are:

Fully covered preventative and wellness services
Prescription medicine discounts
Telemedicine and mental health-related telehealth

If you have a larger budget and think your employees would prefer more benefits, consider an enhanced or highest-level MEC plan.

Enhanced MEC Plans

Compared to a standard MEC plan, an enhanced MEC plan is more likely to improve employee retention and overall satisfaction since it has extra benefits. The features that classify an enhanced MEC plan are:

Fully covered preventative and wellness services
Prescription medicine discounts
Low-copay primary care visits
Low-copay urgent care visits
Telemedicine and mental health-related telehealth
Specialist visits with network discounts
Laboratory services with network discounts

If an enhanced MEC plan is too expensive, consider a standard MEC plan. On the other hand, if you have a larger budget and want more employee benefits, consider the highest-level MEC plan.

Highest-Level MEC Plans

The highest-level MEC plan provides additional benefits and has the most extensive coverage of all three MEC plan categories, which can make it the best for employee satisfaction and talent retention. The features you can expect from a highest-level MEC plan are:

Fully covered preventative and wellness services
Prescription medicine discounts
Low-copay primary care visits
Low-copay urgent care visits
Telemedicine and mental health-related telehealth
Specialist visits with network discounts
Laboratory services with network discounts
Low-copay prescription medicine coverage for brand-name and generic medicines

If the highest-level MEC plan is too expensive but your business still needs to meet ACA requirements, consider an enhanced or standard MEC plan for your employees.

MEC Plan vs MVP Plans

Since both classifications come from the ACA, many people think MEC plans are the same as minimum value plans (MVPs), but they mean different things.

MEC plans are designed to satisfy the ACA’s individual mandate and avoid part A of the ACA’s penalty. Separately, if an employer-offered health plan is an MVP, it provides substantial and affordable coverage in the eyes of the ACA, allowing an ALE to avoid part B of the penalty.

A health plan can qualify as MEC and an MVP simultaneously, but MVPs have a higher threshold than MEC plans. For the ACA to consider a health plan an MVP, the plan must have an actuarial value of 60% or higher, which means:

The healthcare carrier must pay an average of 60% or more of the cost of the covered benefits.
Members pay an average of 40% or less for the covered benefits.
- Depending on their individualized healthcare needs and the specifics of their plan, some members may end up paying more or less than the 40% average for covered benefits.

Similar to MVPs, a MEC plan has particular guidelines and expectations associated with it. Comprehending how a MEC plan works can give you a better idea of how they can augment their members’ lives.

How MEC Plans Work

For the ACA to label a health plan as MEC, it has to offer specific coverage and benefits. Although each MEC plan is different, the coverage scope will usually look similar throughout the MEC plans on the health insurance marketplace.

Coverage Scope

Due to ACA standards, most MECs must offer ten essential healthcare benefits. The majority of MECs provide some level of coverage for the following medical services:

Preventive and wellness services
Hospitalization
Emergency services
Ambulatory services
Prescription drugs
Laboratory services
Mental health and substance use services
Rehabilitative services and devices
Maternity and newborn care
Pediatric services

Although MEC plans usually help with the most standard forms of medical care, they do not cover everything. MEC health plans usually do not help pay for certain services, such as elective surgeries and cosmetic procedures.

By limiting their coverage, many MEC plans can structure their costs in a more reasonable way, making the plans more affordable.

Cost Structure

MEC plans function like many other healthcare plans on the health insurance marketplace. The following components are commonly seen in a MEC plan’s cost structure.

Premiums

MEC plans often require premiums, which are monthly payments that maintain each member’s coverage. Premiums can vary in price depending on the type of plan, the carrier, the level of coverage, and the member’s geographic location.

Deductibles

Most MEC plans require members to pay out of pocket until they meet a deductible. Then, the carrier will help pay for the rest of the covered medical services.

Copays

Many MEC plans incorporate copayments, fixed amounts that members pay for certain services, such as doctor visits and prescription medications. These costs are usually due at the time of service.

Coinsurance

Many MEC plans require coinsurance, meaning members have to pay a percentage of the cost of covered services after meeting the deductible. For example, if a health plan has a 20% coinsurance requirement for hospital visits, the member would pay 20% of the expenses while the carrier pays 80%.

Out-of-Pocket Maximum

MEC plans often declare an out-of-pocket maximum, which limits the amount a member has to pay for covered services in a given year. If the out-of-pocket maximum is reached, the insurance company typically covers 100% of applicable medical expenses for the rest of the year.

With a familiar cost structure and affordable premiums, numerous MEC plan options are available to fit your business’s needs. Before committing to a MEC health plan, think about the advantages and disadvantages it can pose.

Pros and Cons of a MEC Plan

After educating themselves, employers should teach their employees about the benefits and limitations of MEC plans and encourage them to consider additional coverage if needed.

Pros

The most noteworthy advantages offered by a MEC plan are:

Affordable premiums – MEC plans tend to have lower monthly premiums than more comprehensive health plans.
Basic coverage – MEC plans usually provide coverage for essential health benefits.
Regulatory compliance – MEC plans can help ALEs meet regulatory requirements and avoid tax penalties.

Cons

The most commonly recognized downsides of a MEC plan are:

Limited coverage – Many MEC plans do not cover certain healthcare expenses, such as elective procedures or specialty medications.
High out-of-pocket costs – In exchange for cheaper premiums, many MEC plan members will face higher deductibles, copayments, and coinsurance for covered services compared to more comprehensive plans.
Minimal flexibility – Most MEC plans have limited customization options and may not offer additional benefits.
Limited provider networks – Some MEC plans may have smaller provider networks, limiting members’ choices for healthcare providers.

After weighing the pros and cons of a MEC plan, businesses should also determine whether they are legally required to offer them to their employees before deciding how they would like to proceed with their healthcare options.

Are employers required to offer MEC to employees?

Depending on the company’s size, some businesses must offer MECs to their employees. The Internal Revenue Service (IRS) requires every applicable large employer (ALE) to offer MEC plans to their employees. It is crucial that each business learns the rules and penalization costs associated with offering MEC plans or not.

Will Employers Be Penalized If They Don’t Have Minimum Essential Coverage?

As the IRS stated under question 53, if an ALE fails to offer a MEC plan to 95% of their full-time employees and their dependents, the ALE will owe a shared responsibility payment due to section 4980H(a).

The penalty’s cost has steadily increased since it was instated in 2014. As of 2024, the annual penalty is $2,970 per full-time employee. To avoid this tax penalty, every ALE should offer MEC-qualifying plans to all their full-time employees.

Will an Individual Be Penalized for Not Having a MEC Plan?

Before 2019, there was a federal tax penalty for individuals and families who did not comply with the ACA’s individual mandate, also known as the shared responsibility provision. This mandate required everyone to have a MEC plan so that people were paying enough monthly premiums to help carriers successfully pay out claims.

MECs became a popular way to satisfy the ACA’s requirements and avoid penalties without spending excessive money on premium healthcare plans. Nevertheless, at the start of the 2019 plan year, the federal tax penalty was eliminated for incompliance with ACA’s individual mandate—individuals, families, and businesses with less than 50 full-time employees no longer have to pay the federal tax penalty.

However, some states still have their own individual mandates in effect that can result in penalties for incompliant residents. The states that have their own individual mandates are:

Massachusetts
New Jersey
the District of Columbia
California
Rhode Island

Regardless of whether you or your company is at risk of penalization, adopting a MEC plan can still help you prioritize health and wellness while protecting yourself from exorbitant medical costs.

Making an Informed Decision

MEC plans can be a great solution for SMBs that want to increase employee retention and morale. MEC plans are also great for ALEs that need to offer their employees healthcare to prevent having to pay tax penalties.

Whether you are a small or medium-sized business, broker, individual, or family, Redirect Health can help you find affordable health plans that suit your needs. As you are researching MEC plans and other forms of healthcare, be sure to explore our diverse plans to learn about the high-quality, affordable coverage that we can offer you or your SMB.

Each of our plans is strategically built to provide a desirable level of healthcare without breaking the bank. Plus, our Care Team provides 24/7 support and industry expertise to help you with your healthcare needs at any time of the day.