Several statutes and regulations, including from the Internal Revenue Code (“IRC”) and the Affordable Care Act (“ACA”), have been issued to regulate group health plans (“GHPs”) to address and ensure that minimum essential coverage (“MEC”) is offered to employees and participants. The goal of MEC is to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. MEC applies to multiemployer health plans through employer sponsored programs (including Consolidated Omnibus Budget Reconciliation Act (“COBRA”) coverage and retiree coverage) and grandfathered health plans. GHPs must comply with several coverage, reporting, and notice requirements to avoid potential penalties.
For GHPs to be in compliance with these statues and regulations the MEC must be affordable and must provide an employee or participant with a minimum value (“MV”) of at least 60% of the estimated healthcare expenses that a GHP is expected to cover based on the total cost of benefits that are expected to be incurred under the Plan. The calculated MV does not include any amounts paid for the premium. To state this in another way, participants should not be paying more than the average of 40% of the total allowed cost of benefits, which includes deductibles, coinsurance, copayments and other out-of-pocket amounts. In 2025, MEC is calculated as affordable if an employee’s or participant’s required contributions does not exceed 9.08% of the employee’s household income for the lowest-cost, self-only coverage option offered by the GHP. Since an employer will often be unaware of an employee’s “household income,” three safe harbors have been implemented to protect GHPs. These safe harbors allow GHPs to use an employee’s or participant’s: Form W-2 wages, an employee’s rate of pay, or the federal poverty line to calculate affordability (as opposed to “household income”). The GHP must also ensure that the MEC applies to 95% of the full-time employees or participants and their children under the age of 26.
In addition to the coverage requirements there are several reporting and notice requirements that must be provided to certain government agencies and to employees and participants. The goal behind providing these reports and notices is to ensure that individuals understand that tax rule surrounding the premium tax credit and to provide the IRS with the information needed for effective and efficient tax administration.
The plan administrator must submit certain information to the United States Department of Health and Human Services (“HSS”), including:
- The identity and contract information of the plan sponsor;
- The name, title, phone, address, and the employer identification number (“EIN”) of the reporting entity who is authorized to make the certification on behalf of the GHP;
- If the form is filed by an insurer covering a GHP, the insurer must also provide the name, address, and EIN of the employer.
- The number of enrollees of the health plan;
- The Plan’s eligibility criteria;
- Cost sharing requirements, including deductibles and out-of-pocket maximum limits;
- Essential health benefits covered;
- The name, address, and taxpayer identification number (“TIN”) of the primary insured;
- The name, dates of coverage, and TIN of each individual covered under a health policy or program;
- The months of coverage for each covered individual; and
- Any other information required.
In addition to the information that must be filed with the HSS, plan sponsors, plan administrators, and health insurance issuers must also provide notices regarding the provided MEC to employees and participants enrolled in the GHP of the MEC status and must comply with the reporting requirements and implementing regulations. The ACA also requires that a summary of material modification (“SMM”) for plan changes that affect the Summary Plan Description (“SPD”) be provided within 60 days of the change. In addition, all ACA-compliant insurance policies must provide a Summary of Benefits and Coverage (“SBC”) to employees and participants.
If a GHP fails to comply with the filing and reporting requirements, it may be subject to penalties for failure to file a correct information return and failure to furnish correct payee statements. If a GHP fails to furnish and file the correct information due to reasonable cause and not due to willful neglect, then the penalties may be waived.