Under the Affordable Care Act (ACA), minimum essential coverage (MEC) is any health insurance coverage that meets the individual shared responsibility requirement, also known as the individual mandate. While the federal tax penalty for not having MEC is no longer in effect for individuals, MEC is essential for various types of employer-sponsored health benefits.
This article will explain which types of insurance coverage satisfy the individual mandate, what happens if an employee doesn’t have qualifying health coverage, and which type of coverage works with benefits such as health reimbursement arrangements (HRAs).
Since various insurance options satisfy the individual mandate, you’re bound to find coverage that meets your personal and family needs.
We’ll cover three types of coverage that satisfy the individual mandate:
Let's start with the most popular option—employer-sponsored coverage. This includes any group health insurance policy you got through your job.
According to the Kaiser Family Foundation1 (KFF), 48.5% of all workers in the U.S. have an insurance plan they got through their employer.
Examples of employer-sponsored coverage include:
Next up is individual health coverage, or any insurance policy you purchased on your own and only covers you or your family. While group health insurance policies are the traditional choice for health insurance, individual policies have grown in popularity in recent years.
According to the Department of Health & Human Services2, a record-breaking 14.5 million people signed up for individual marketplace coverage during 2022 open enrollment. You’ll need to sign up for a marketplace plan during open enrollment unless you have a qualifying life event that creates a special enrollment period.
Examples of individual health coverage include:
Finally, there’s coverage under government-sponsored programs. Depending on your age, disability status, income level, military service, or other factors, you may qualify for an insurance policy at a reduced cost through the government.
Examples of coverage under government-sponsored programs include:
To qualify as MEC, an insurance policy must cover a minimum level of health needs. Any sort of coverage that provides only a “limited” set of benefits doesn’t satisfy the individual insurance mandate.
Examples of coverage that may provide limited benefits include:
Additionally, most insurance types offered between annual open enrollment periods, such as short-term health insurance, fixed benefit plans, and supplemental insurance, won’t satisfy the individual mandate either.
When the federal government first introduced the ACA, Americans who didn’t satisfy the individual mandate were penalized with a fee on their tax return. Beginning in 2019, the individual mandate federal penalties are no longer enforced for most states3. If you don’t reside in a state that has an individual insurance mandate, you don’t have to get an insurance policy that meets MEC if you don’t want to.
Places with individual healthcare mandates include:
However, there are still reasons to choose coverage that meets the individual mandate. While the federal government no longer requires it for general health insurance needs, there are certain HRAs and employer-sponsored health benefits that require you to have MEC to participate—or at least to benefit from it fully.
Participating in an HRA is an excellent way to cover your health insurance premiums and other qualifying medical expenses through your employer tax-free. However, depending on the type of HRA your employer offers, you may need to have insurance with MEC to participate or receive tax-free reimbursements.
We’ll cover three of the most popular types of HRAs:
A QSEHRA is a formal employer-provided health benefit for organizations with fewer than 50 full-time equivalent employees (FTEs). With a QSEHRA, employers reimburse their employees tax-free for their medical expenses, including individual health insurance premiums and out-of-pocket costs.
All full-time employees are eligible to participate in the benefit regardless of their insurance status, so you don’t need any specific type of insurance to be eligible. You don’t need to be insured at all to participate.
However, you must have coverage that meets MEC to get reimbursed tax-free for your medical expenses. If not, you’ll have to pay taxes on each product and service you get reimbursed through your QSEHRA.
Next, there’s the ICHRA. This is a formal health benefit available to organizations of all sizes. Like a QSEHRA, employers can reimburse their employees for their individual insurance premiums and medical expenses.
As the name suggests, individual coverage is required for employees to be eligible to participate. This coverage also needs to be MEC, but not all types of MEC will work with the ICHRA.
Acceptable insurance types under an ICHRA include:
An ICHRA isn’t compatible with the following types of medical plan coverage:
Lastly, there’s the integrated HRA, or GCHRA. This HRA is available exclusively for employers who want to offer an HRA to supplement their group health insurance plan. That means if you have a GCHRA from your employer, you’re already covered under a qualifying form of MEC.
Understanding which types of insurance plans are considered minimum essential coverage is an important first step to choosing a policy that works best for you and your family, especially if you hope to combine your coverage with an HRA. Moving forward, you'll be ready to make intelligent decisions about your insurance to get the coverage you need.
This blog article was originally published on June 9, 2014. It was last updated on January 5, 2023.