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What is MEC and What Does it Cover?

What is MEC?

Understanding minimum essential coverage (MEC) can be complicated when comparing MEC to Minimum value, essential health benefits, and actuarial value. Let’s start by answering what is MEC and what does it cover? MEC is a plan that meets the Affordable Care Act requirement for getting health coverage. Some of these programs under MEC include marketplace plans, job-based plans, Medicare, and Medicaid.

So what is the difference between MEC and minimum value?

Minimum value is a higher threshold than MEC. Minimum value is when a plan pays 60% of the actuarial value of allowed benefits under the plan. If a large employer offers benefits and meet MEC requirements, but they do not meet the minimum value they meet the ACA employer requirements. 

What about MEC and Essential health benefits?

Essential health benefits are the core benefits that “qualified health plans” must cover. MEC also has a lower threshold than Essential Health Benefits. If a group health plan doesn’t provide all the benefits under the essential health benefits, the coverage will likely meet MEC, so companies will be ACA compliant.

Why is it important to understand the differences? 

Each of these coverage specifications are important to ensuring large employers provide proper coverage to their employees. As an employer, you must understand your legal liability in providing benefits, as well as understanding what coverage you need to be offering your employees to give them the best options and ensure compliance with the ACA.

At SBMA, all of our plans are compliant with MEC regulations to ensure your employees have coverage for whatever comes your way. Want more information? Visit our site to understand your coverage options better.

What is MEC and what does it cover?

Are You Liable for Shared Responsibility Payments?

are you liable for shared responsibility payments?

With all the recent changes to employment due to the global pandemic, navigating ACA compliance can be challenging. ACA noncompliance may lead to shared responsibility payments. Businesses with 50 or more full-time employees must offer affordable, minimum essential health coverage. 

How can your business avoid tax penalties from the IRS? 

The first step to avoid potential shared responsibility payments is to make sure your business stays compliant with the ACA shared responsibility requirement. While this may seem simple, there are few distinctions to be aware of, including determining full-time employment status and full-time equivalents, and identifying the minimum value requirements. 

If employers do not cover at least 95% of full-time employees and their dependents, the employer will be subject to a shared responsibility payment. 

If a full-time employee receives a premium tax credit because they were not offered coverage, the coverage was not affordable, or the minimum value was not provided, the employer may also be subject to a shared responsibility payment. 

Once you have identified how to stay compliant with the ACA shared responsibility requirements, ensure your reporting is accurate and timely. 

Applicable Large Employers (employers with 50 or more employees) are required to file information returns with the IRS, Forms 1094-C and 1095-C. These forms will inform the IRS of the employers that owe shared responsibility payments.

To mitigate the risk of receiving a letter from the IRS for shared responsibility payments, employers should carefully review and complete the forms above. 

If you do receive a shared responsibility payment letter from the IRS, the employer has 30 days to respond. If you do need more time to gather your information, the IRS may be able to extend the 30 days deadline. Either way be sure to respond or ask for an extension as quickly as possible.

If you are required to pay a shared responsibility payment be sure to consult a lawyer to ensure your reporting is accurate. At SBMA, we want to ensure you remain compliant with all ACA requirements. If you receive a letter from the IRS in 1094/1095 filing that we completed, we will refile your forms, free of charge. 

Contact us today to learn more.

shared responsbility payments

What You Need to Know about 2020 1094/1095 Filing

Due to the Coronavirus outbreak, the IRS has pushed back the tax filing deadline to June 15, 2020, for individuals, but there have been no specific details into filing for 1094/1095. The only information they gave was that the 30-day extension that can be filed past March 2 can be extended an additional 30 days. Here’s what you need to know about 2020 1094/1095 filing.

Form 1094-C/1095-C

Form 1095-C, which is filed to any full-time employee of an Applicable Large Employers member (employers with 50 or more full-time employees), who is full-time for one or more months of the tax year. These members report information regarding each employee for all 12 months of the year.

The information that is reported from both 1094-C and 1095-C is used to determine employer liability for payment under the employer’s shared responsibility provision, section 4980H, and the amount, if any, that is owed. 

Employers that are subject to the ACA must distribute 1095 reporting forms to employees and transmit copies to the IRS, with a few exceptions:

Form 1095 B, Health Coverage

  • . Transmittal Form 1094-B to accompany Form 1095-B
  • Instructions for Forms 1094-B and 1095-B
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
  • Transmittal Form 1094-C to accompany Form 1095-C
  • Instructions for Forms  1094-C and 1095-C

Forms 1094-B/ 1094-B

Information in form 1095 B is reported to the IRS and taxpayers regarding employees who are covered by minimum essential coverage (which includes government-sponsored programs, eligible employer-sponsored plans, individual market plans, other Department of Health and Human Services coverage). Eligibility for this coverage may affect a taxpayer’s eligibility for the premium tax credit.

Everyone who provides minimum essential coverage to employees during a year must file an information return that reports the coverage, using forms 1094-B and 1095-B.

There is an automatic 30-day extension for both forms 1094-B and 1095-B, which you can receive by completing Form 8809 and filing it with the IRS on or before the due date. There is no need for a signature or explanation to receive the extension, but form 8809 must be filed before the due date of the returns. You may also apply for an additional 30-day extension under certain hardship conditions.

At SBMA, we take the complexity of 1094/ 1095 filing off your plate.  Our team will take care of all of the filings and, in the event the IRS sends a letter saying the filing was incorrect, we will take care of the refiling on your company’s behalf. 

Penalty A and B Compliance

What You Need to Know About Penalty A and B Compliance

If you are a business owner and qualify as a “large employer” —  any company with 50 or more full-time or full-time equivalent employees (employees who average 30 hours per week) — there a few things you need to know regarding employee coverage. If you don’t comply with the regulations set for you, you will face significant penalties, which can quickly add up. 

ALE employers must offer affordable or minimum value medical coverage to their full-time employees and their dependents until the age of 26. This minimum essential coverage includes various programs that comply with ACA’s provisions to employer health care. 

Any employer who does not offer minimum essential coverage to at least 95% of their full-time employees and their dependents is subject to penalty, and at least one employee obtains coverage through the Marketplace Exchange. This penalty includes a $2,320 fine per full-time employee after the first 30 employees. If you have 150 employees, this penalty would be $308,400.

If employers offer coverage, but the coverage is not affordable or does not meet a minimum value, they may still receive a penalty. If your employee’s share of the premium for the coverage you provide is more then 9.78% of their household income, the coverage is deemed unaffordable. 

The penalty includes either a $3,480 fine per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace or a $2,320 per full-time employee, not including the first 30, depending on which is the lower cost for the company.

As you can see, these penalties can add up to a lot of expenses for your business. At SBMA, we want to help you avoid any potential penalties for lack of proper insurance. Contact us for more information regarding your employer benefit needs. 

The Importance of Penalty A and Penalty B Compliance

Employee benefit programs have been mandatory for all applicable large employers (ALE) since the Affordable Care Act, enacted in 2010. This Act requires employers to offer minimum essential coverage to all employees who work in a company with a staff of 50 or more. Failure to comply with this requirement will cause penalties for these companies and will likely lead to an IRS Audit down the road. Here is more information regarding the importance of Penalty A and Penalty B compliance.

Penalty A

Penalty A and B Compliance

The ACA ensures that ALEs offer coverage to more than 95% of their full-time workforce (who work 30 hours or more a week) and their dependents. If they fail to do this, the Employer Shared Responsibility Payment (Penalty A) will be issued. As of 2020, the cost for this violation is $2,750 for each full-time employee. Each month an eligible employee is not offered coverage; the penalty enforces, which comes to $214.19 per month for one employee.

If an employer has 500 employees, and they do not offer benefits to 95% of their full-time workforce, they could face at least a million dollars in violation fees. (See graphic.)

Penalty B

In addition to the minimum essential coverage ALE employees must provide, they also have to ensure that the coverage they offer their full-time employees is affordable. For coverage to be accessible, the employee must pay less than 9.78% of their household income. So coverage should cover more than 60% of medical service expenses. Noncompliance with this requirement could result in a $3,860 fine per employee who receives and exchanges tax credit.

If 100 of an employer’s employees receive a premium tax credit or subsidy on the Marketplace exchange, the employer’s fine is $3,860 per employee, which results in a $386,000 fine. Like Penalty A, Penalty B requires monthly assessments, for each employee not offered coverage that is a $321.67 fine.

Other Compliance Issues

Other penalties that may incur:

The delivery of Forms 1095-C to every recipient by January 31. Every form that is not delivered will incur a $280 fine.

All Forms 1094 and 1095 must be filed electronically by March 31. For every form, there will be a $280 fine failure with intentional disregard will increase the fine to $560.

At SBMA, we want to help your company avoid any potential penalties. Our team will take care of all of your 1095/1094 filings, and, in the event the IRS sends a letter saying the filing was incorrect, we will take care of the refiling on your company’s behalf.

What Does Minimum Essential Coverage Entail?

Minimum Essential Coverage was created when the Affordable Care Act was enacted. Before the Affordable Care Act began, people who already had medical conditions or had used too much medical care in the past were able to be denied coverage by insurers. Minimum Essential Coverage ensures that all ACA-compliant health care plans offer insurance to all enrollees regardless of health status or which plan they select. What exactly does minimum essential coverage entail?

To be considered minimum essential coverage, all health plans must cover ten necessary benefits. The amount of those benefits that they cover depends on the actuarial value. This number is determined by metal tiers, which depend on how much you pay per month. The more you pay the more is covered.

So what are the essential benefits that will be covered under minimum essential coverage?

Every plan must include these necessary benefits to ensure affordable health care for all. This saves people from spending ungodly amounts of money on health care services. These benefits include:

  • Laboratory Services: This includes diagnostic lab tests and preventive screening tests, like diabetes and cholesterol screenings.
  • Emergency Services: Any emergency care at a hospital or a facility out of network is covered with your insurer. 
  • Prescription Drugs: The medications are categorized by tiers, each tier contains at least one drug that your insurance will assists payment for. However, not all medications are within the tier, so similar medications to the ones included will not be covered under insurance.
  • Mental health and substance abuse related services: All plans include some kind of coverage for emotional and psychological well-being. These services include counseling, psychotherapy, mental health inpatient services, and treatment for substance abuse.
  • Maternity and newborn care: All plans include multiple services that care for you and your baby during all stages of your pregnancy, the delivery, and after delivery. 
  • Pediatric Services: For children who are included in your health plan your insurance will cover services that keep them healthy, including oral, vision care, vaccinations, and well-child visits.
  • Rehabilitation and habilitative services and devices: These services and devices that are designed for people with injuries, chronic conditions, and disabilities. It also includes physical, occupational, and speech therapy visits. 
  • Ambulatory patient services: Services included in outpatient care when a medical facility does not keep you the night after a procedure are covered.
  • Preventive/ wellness services and chronic disease management: Any services that assist you in staying healthy are covered by all insurance plans. This includes cancer screenings, annual checkups, and other preventative measures.
  • Hospitalization: If you have to go to the hospital for inpatient care, all plans are required to help with medical bills. This may only be more a certain period of time, but they are required to assist with the cost.

In addition to these 10 essential benefits for each plan, COVID-19 testing is also considered an essential health benefit. You must meet the CDC testing criteria to receive the test. If you live outside of California, New York, and Washington you will be required to pay any deductibles, copay, or coinsurance.

At SBMA, we are committed to providing top-of-the-line ACA compliant solutions to your insurance needs. Contact us for more information.

ACA Penalty A and B Breakdown

All large employers, with greater than 50 employees, must comply with the Affordable Care Act. The ACA requires employers to offer minimum essential coverage to all employees. If an employer does not comply with this employee coverage requirement could lead to penalties for the employer and potentially and IRS audit later on. Here is a breakdown of the ACA penalty A and B, and how they could affect your company:

ACA Penalties A & B.png

ACA Penalties May Affect Your Business

Under the Affordable Care Act (ACA), large employers are required to offer health insurance to their employees. Despite everything going on, the IRS will continue issuing letters to large employers regarding penalties for years prior. Beginning in 2015, employers that do not meet the ACA standards can be assessed by a shared responsibility payment. Here are a few of the details behind the ACA health plan penalties and what that may mean for your business:

What are the standards for coverage under the ACA?

For employers to avoid penalties, they must meet three requirements:

Minimum essential coverage: Employers must offer healthcare coverage to at least 95% of full-time employees as well as their dependents until they reach the age of 26. Part-time employees who work fewer than 30 hours a week are not required to have coverage by their employer. 

Employers who do not meet the minimum essential coverage requirements could receive a penalty equal to the number of full-time employees, minus 30, multiplied by $2,000. This penalty can incur if one full-time employee purchases coverage with premium tax credits within the Health Insurance Marketplace. For 2020, the penalty is $2,570 for the year. 

Minimum value: The ACA also required employers to offer health coverage of a predetermined minimum value. The plan should cover certain medical expenses and pay at least 60% of the employee’s health care costs to meet this minimum value requirement. Employees would pay the additional 40% with deductibles and copays. 

Employers can determine insurance value by looking at the Summary of Benefits and Coverage document or by asking the health insurance providers. Employers can also calculate the minimum value on their own by using a government calculator or engage an actuary to determine the value. It is important to have written documentation that shows that your coverage supports the minimum value requirement.

Affordability: Lastly, the healthcare plan must meet the ACA’s affordability standard. This limits the amount employers can charge employees for self-only coverage. To be considered ‘affordable’ employee’s cost for self-only coverage can’t go above 9.5% of the employee’s wages in box 1 of their W-2 Form, the employee’s rate of pay, or the federal poverty level. 

If an employer does not meet the affordability requirement, they could open themselves up to a $3,000 annual penalty for the full-time employees that purchase health coverage on the Marketplace. The penalty adjusts for inflation rates, and for 2020 the rate is $3,860. 

What is considered a large employer?

Employers with at least 50 full-time employees (including full-time equivalents) from the previous year are considered large employers. Aggregated groups can make this consideration sometimes difficult. Companies with fewer than 50 full-time employees, but are involved in an aggregated group with other companies, will be considered large employers. 

These aggregated groups include a parent-subsidiary group if one company owns 80% of one or more companies; brother-sister groups with five or fewer employees, estates or trusts own 80% of two or more entities and have 50% identical ownership of those entities; tax-exempt organizations if 80% of directors or trustees of one organization are representatives of or controlled by another organization; firms that provide services, like healthcare, law, engineering, accounting, etc. if the firms have common owners, provide services for each other, or work together to provide services to customers; and lastly, any firm whose main revenue comes from the management of other companies.

As you begin calculating the number of individuals you employed last year, determine the number of employees who have worked at least 30 hours a week on average. Those who haven’t reached that number are added together and divided by 120 to determine full-time equivalents. 

What to do if you receive a penalty?

The employers that do not offer health coverage and meet the ACA requirements will owe penalties for full-time employees that report premium tax credits on their income tax returns for health insurance when purchased through the Marketplace. If this happens, the IRS will mail them a tax liability notice and allow them to respond prior to any required payment. 

Forms 1095- C and 1094- C and employee’s 1040 Forms are where the IRS will determine any shared responsibility payment. Once an employer receives notice from the IRS, employers have 30 days to respond by giving the IRS an explanation of why the assessment is incorrect in their view or pay the penalty. 

At SBMA, we ensure all of the coverage that is offered is ACA compliant. We help file your 1094 and 1095 Forms. Contact us for more information!

ACA Compliance and Workplace Changes

In just a few months, the coronavirus has caused the global economy to enter a major downturn that could last for years. While nearly everything in our lives has been affected by the pandemic in some way, group health benefits have endured one of the greatest impacts of any industry. Congress has passed new laws, and employers must consider the effect of the layoffs, furloughs, and other workforce changes in regard to the ACA

Employers could face penalties from the ACA if they have laid off or furloughed employees without completing a full termination agreement, if they have required employees to use unpaid time off, or if they’ve simply reduced employee hours and subsequently stopped offering benefits. Under the ACA, full-time employees are typically measured by the look-back method, which means the number of full-time employees for 2020 is based on the 2019 number. 

The employers who have terminated employees according to California state laws are not responsible for offering those individuals coverage. Those who have furloughed or moved employees to unpaid leave are responsible for offering coverage. 

When an employee decides to furlough or move their employees to an unpaid leave status, they must consider a few things. First, to avoid penalties, they must verify all full-time employees are being offered health coverage while they are furloughed or put on leave. If the employer doesn’t offer coverage to at least 95% of their full-time employees, furloughed, or on unpaid leave status, they open themselves up to a $2,570 penalty for all full-time employees, not including the first 30.

Second, employers should consider the implications of COBRA or 100% percent-of-cost offerings to full-time employees. If full-time employees waive the COBRA offer and subsidize their policy in the Marketplace, the large employee is subject to a penalty of $3,860 per employee that it applies to.

Lastly, employers must document their coverage offerings and ensure that their offerings are made to ensure carrier eligibility considerations are met by contacting their insurance carrier. 

For more information on ACA complaint insurance programs, contact us!

ACA Compliance and COVID-19

How to Prevent ACA Penalties due to COVID-19

Due to COVID-19, ACA compliance has become a bit more complicated. As an employer, you must ensure that all your paperwork and practices are ACA compliant. If individuals wrongly receive a PTC, the employer is responsible for proving to the IRS that the individual did not qualify. It is now more important than ever to have your information in order, in case of future issues. In the ACA times article below, you will see why ACA penalties may increase this year, and how you can prevent potential penalties for your business.

A new data analysis report from the Kaiser Family Foundation (KFF) finds the vast majority of Americans who lost their job amid COVID-19will be eligible for government-subsidized health coverage.

The KFF report, issued May 13, identifies 79% of Americans that lost their job due to COVID-19 related factors “are likely eligible for subsidized coverage, either through Medicaid (12.7 million) or through the ACA’s marketplaces (8.4 million).”

Of the nearly 13 million potentially eligible for Medicaid, individuals will have a more affordable option if their home state was one of the 37 to have expanded Medicaid.

The remaining eight million and counting will apply for a Premium Tax Credit through either a state or federal health exchange. Some of these individuals may wrongfully receive the government subsidy, as a recent TIGTA report finds. Whether they correctly receive the subsidy or not, the onus will be on employers to maintain accurate records as they gear up to file their 1094-C and employee 1095-C’s with the IRS next year. Without detailed record-keeping and an accurate ACA filing, employers could potentially expose themselves to significant ACA penalties.

As a reminder, PTCs are the trigger for the IRS issuing Letter 226J penalty notices to employers identified as having failed to comply with the ACA’s Employer Mandate for a specific tax year.

Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.

If individuals wrongfully received a PTC, the burden falls on the employer to not only have their ACA practices and filing tight-nit, but to also prove to the IRS that the individual did not qualify. For those who correctly received the PTC, it is important that employers code the employee’s 1095-C correctly to prove why the PTC should not result in a corresponding penalty.

And with states passing special enrollment periods allowing individuals to enroll in their health exchanges indefinitely, employers may see a significant uptick in the number of IRS penalty assessments in the mail due to more PTCS being issued.

This could prove problematic for employees, currently facing financial challenges from COVID-19, among other issues including furloughs, layoffs, changes in employee classification and so on.

Employers should explore ACA Complete as a solution to ACA compliance and have peace of mind knowing their workforce changes are being documented and handled by a third-party expert who specializes in data consolidation, analysis and regulations.

To learn more about ACA compliance in 2020, click here.