By: Alexander Renfro, JD, LLM
President, Affordable Benefit Choices

“TRAITOR!” the red-faced man in the front row shouted, jumping to his feet and pointing a finger at me.  The people in the audience who had been checking their emails or daydreaming instead of listening to my presentation on “Common ACA Misconceptions” suddenly became more attentive.  I guess it’s not every day that an employee benefits and ERISA attorney gets publicly accused of high treason.

“Excuse me?” I said.

“You’re the guy who invented MEC plans!” Red-face practically spat.

“I don’t know about that,” I smiled, turning a little pink myself.  “I may have been among the early…”

“Cut the BS!” he interrupted.  “You have the patent on it!”

“Well, no. I filed an application three years ago, but these things take time.”

“And meanwhile, you’ve sold a whole crapload of MEC.”

“We’re certainly pleased with the success of our program,” I said.  “But I’m not sure what constitutes a crapload.”  A few people in the audience chuckled, but the guy in the front quickly glared them into silence.

“And now you’re standing up there and trying to tell us that MEC plans are worthless!  I’d say that makes you a traitor.  Or worse.”

I’d like to tell you that I was able to explain to the red-faced man, and everyone else in the room, why I wasn’t a traitor (or worse), and in fact have never changed my position about what Minimum Essential Coverage (MEC) is, or what it does.  I would also like to tell you I’ve pitched a shutout in the World Series, and was recently named People magazine’s Sexiest Man Alive.  But unfortunately, Red-face (who I later learned had sold a double crapload of another company’s MEC plan, which probably is worthless) stormed out of the room, and the session ended not long after.  Oh yeah, and they didn’t even let me pitch in Little League, and People hasn’t called – but my wife insists it’s only a matter of time.

So I thought I should try to clear up any confusion about where I stand on MEC plans, so that if another heckler interrupts one of my talks someday, I’ll at least have something to hand him or her on the way out.  Here are the key points:

  1. MECWellness! The single biggest misconception in the self-insured ACA compliance space is that Minimum Essential Coverage means Wellness and Preventive benefits only.  It doesn’t, and never did. In fact, ACA requires that compliant plans provide a “comprehensive” package of traditional major medical benefits.
  2. Wellness-only “MEC” Plans Do Not Prevent the A Tax. The second biggest misunderstanding is that by providing a Wellness-only plan, an employer has satisfied IRC 4980H(a), and therefore will not be penalized $2,000 per employee per year.  Promoters of such plans often advise employers to “risk it” on § 4980H(b), because the $3,000 annual penalty for violations of that provision only applies for those employees who are willing and able to pay for subsidized exchange coverage – and few are.  This strategy is based on a misread of ACA, and is extremely risky.  Failing to offer a plan that can definitely satisfy MEC standards  – which includes much more than simple Wellness – leaves an employer open to both 4980H penalties – (a) & (b), and playing games such as the those suggested by the Wellness-only promoters may leave employers in violation of § 4980D as well, and its maximum $36,500 per employee per year “death penalty.”
  3. I have never designed or sold any plan that did not include an offer of all ten Essential Health Benefits to all eligible employees. Yes, I created the WellMEC™  And yes, my colleagues and I at Affordable Benefit Choices have provided benefits to many thousands of employees, along with guaranteed ACA compliance to hundreds of employers.  But WellMEC™ – along with several newer variations[1] – is and always has been two plans, which must be offered simultaneously and can’t be “unbundled.”  One provides Wellness and Preventive Benefits only – much like other “MEC” plans.  (I put “MEC” in quotes because these promoters aren’t really selling MEC at all – they’re just calling it that.  A better name might be a “2713 plan,” since Wellness and Preventive benefits are mandated by PHSA § 2713, a section which does not mention MEC.) But our other core plan – WellMIN™ – is an actuarially certified, fully ACA-compliant Minimum Value Plan that meets all ten of the EHB requirements, including “substantial coverage” of hospitalization and ambulatory benefits, as required by federal regulations.  The bona fide offer of WellMIN™ is what prevents our clients from incurring penalties under § 4980H(a) & ( b).  That’s how I understood ACA when I began studying it in 2009, when I designed WellMEC™ in 2012, when we started selling it in 2013, and today.  So to Red-face, and anyone else who thinks I’m a traitor to the Wellness-only “MEC” cause, I can only say “Sorry, but I was never in your army to begin with.”
  4. The idea that MEC=Wellness in self-insured plans is the result of a minor ACA drafting error (which will soon be corrected, either by IRS/DOL/HHS regulation or the courts or both), and some major wishful thinking. ACA is an extremely complex piece of legislation that had to get written and passed quickly back in 2010, or not at all.  As a result, a lot of mistakes and oversights were made, which have already resulted in several lawsuits – including a few that made their way all the way to the US Supreme Court.  Every one of these cases has been resolved in favor of a “common sense” reading of the intent of the law, and so will the question of whether an Applicable Large Employer (ALE) can essentially ignore the ACA Employer Mandate, simply by electing to be self-insured.  That is the position that the Wellness-only “MEC” promoters are taking:  Because we’re self-insured, the rules don’t apply to us.  A health plan can be anything we say it is.  That is frankly a much bigger stretch than several of the others that federal regulators and the courts have already rejected,[2] and it won’t hold up.  Much as with the question that was resolved in King v. Burwell, there are dozens (if not more) of sections in the ACA that make clear its intent as to the obligations of ALEs to offer EHB to all full-time employees.  Self-insured Wellness-only promoters would like us to ignore all of those and focus instead on a single poorly-worded, ambiguous passage.[3]  Good luck with that.
  5. The reason that Preventive benefits received special treatment under ACA[4] was not to allow for the creation – much less the official blessing – of Preventive-only plans. It was to mandate that Preventive benefits be available at no cost to participants as a part of all ACA-compliant plans. “MEC” promoters want us all to believe that ACA established Preventive-only as the minimum standard for self-insured plans to avoid penalty exposure under 4980H(a).  It didn’t.  While 2713 plans have value (see below) ACA does not define them as “MEC,” and it is highly unlikely that future regulatory guidance will ever bless Wellness-only plans as providing compliant Minimum Essential Coverage.
  6. Despite their limitations as a complete ACA compliance solution, Preventive & Wellness plans do have value, which is why we offer them – but only in conjunction with our ACA-compliant WellMIN™. All of our plans feature no-cost Preventive & Wellness benefits, for these reasons:
    1. We should take better care of ourselves. It’s not an exaggeration (or at least not much of one) to say that we could balance the budget and eliminate the national debt if we would all pay more attention to our bodies before we get sick, instead of waiting until after.  Whatever else you think of ACA or the people who gave it to us, they got that part right.  Encouraging everyone to make full use of the latest Preventive medicine resources and to practice healthy living are goals we’re proud to support.
    2. We need money! No insurer – whether a traditional fully-insured carrier or a self-insured employer – can afford to provide “true MEC” – consisting of traditional health benefits, with no annual or lifetime limits – to those participants who really need it, without collecting premiums from those who don’t.  This is Insurance 101 – spreading risk, to allow the fortunate (those who don’t get sick, or have automobile accidents, or house fires) help support those who are less fortunate.  By requiring that every participant (or their employer) pay for Preventive coverage – which carries less risk than the other EHB categories – we build a fund that allows us to offer WellMIN™ to everyone, with no minimum participation requirements for any group.  And because that fund is solid and substantial, we are able to contract with an A-rated, internationally-respected reinsurer to stand behind our own domestic captive reinsurance pool and back all of our plans.  So our clients never have to worry about being asked for additional funding, and their employees never have to worry about whether their legitimate, approved claims will be paid.
    3. Getting something is better than getting nothing. Since we (and anyone else offering ACA-compliant EHB coverage without minimum participation requirements or medical underwriting) need to collect premiums from healthy people as well as from those with costly major medical needs, we would rather provide something of value for everyone.  Preventive and Wellness benefits can almost be viewed as a “freebie” – a valuable bonus for ALEs to provide to their employees, for whom they would have to pay anyway in order to support the overall plan.  This is not what ACA explicitly intended, but it is nevertheless a practical and worthy by-product of offering compliant coverage.  Although ACA allows ALEs to require employees to contribute toward the cost of their health plans, and to satisfy the Employer Mandate by offering a compliant plan, even if employees decline to contribute (as many newly eligible, budget-conscious employees will), and thus are not enrolled, we believe that providing at least Preventive benefits to all employees is a good – and affordable – business practice.
    4. We’re tired of arguing – and we don’t need to. If anyone wants to keep believing, despite the mountain of evidence to the contrary, that Wellness-only plans are what ACA requires for self-insured employers, then we have great news:  You get Wellness with all of our programs, automatically!  Plus you also get access to actual, certified compliance, via WellMIN™, with no participation requirements, and you pay about the same (or less in many cases) for the whole package as you would for Wellness-only “MEC” from another source.  (But if it’s a few dollars more, I submit that it’s money well spent.)
  7. Penalties for offering non-compliant MEC (including Wellness-only plans) may or may not be retroactive, so it’s better to be safe than sorry. I don’t know anyone who follows ACA compliance issues and believes that self-insured plan promoters will get away forever with offering Wellness-only “MEC.”  So it’s a matter of when, not if, the hammer is going to fall.  Some people who like to live more dangerously than I do claim that it will come down slowly, giving even the scammiest promoters plenty of time to scurry out of the way.  These optimistic individuals point to the way HHS and IRS dealt with another version of ACA “skinny MV plans” – plans which claimed to provide Minimum Value, but lacked Hospitalization[5].  While making clear that these plans were non-compliant (a position I had always taken, which put me at odds with earlier incarnations of the red-faced man[6]), the regulators generously allowed employers a full year (or more) to get into line.  So the “let’s roll the dice” reasoning goes that the same will happen with “MEC,” and therefore why not wait to offer EHB until we absolutely have to?  Two reasons:
    1. The political landscape is different. A lot has happened since the Skinny MV plans were handed a Get Out of Jail Free card in 2014:  the King vs. Burwell decision; millions more Americans signed up for coverage under ACA; and administrative actions have been taken to establish protocols for enforcement of the Employer Mandate.  As for the elephant in the room, I’m writing this in the summer of 2016, when no one can say for sure how the November elections will turn out.  But I see several scenarios that could lead to more rapid and robust enforcement of the Mandate, and only one (complete repeal of ACA) that would likely lead to less.  And if you’re betting on repeal, then I doubt you’ve taken the time to read this far.
    2. Wellness-only “MEC” is a much more aggressive penalty-avoidance scheme than the old “Skinny MV” plans were, and are likely to receive a more aggressive regulatory response. There are 10 EHBs[7], and Skinny MV plans covered up to 9 of them.  Most current “MEC” plans cover only one of the EHBs – Preventive & Wellness, which provides the least exposure for the insurer/sponsor, and virtually no traditional medical benefits for participants.  Given these facts, it’s not hard to imagine that regulators and/or the courts will take a more punitive posture toward “MEC” promoters and their clients, with penalties being imposed back to the plan effective dates.  (“Retroactive” is not even the accurate term for such penalties – they would simply constitute “active” enforcement.)  Penalties could range from $2,000 per employee per year, all the way up to $36,500 per employee per year, with the steeper fines coming in those instances where regulators find that employers knew – or should have known – that they were offering non-compliant plans.

I hope this clears up any confusion about my position relating to MEC.  To recap, the key points are:

  • Wellness-only plans, no matter what you call them, likely do not satisfy any portion of the ACA Employer Mandate, and they leave sponsors exposed to the “A” tax as well as the “B” tax penalties.
  • Preventive & Wellness plans nevertheless have significant value and utility, which is why we have always provided them along with our fully ACA-compliant WellMIN™ Minimum Value Plan.
  • Our core plan – WellMEC™, always offered in conjunction with WellMIN™ – has not changed since 2013. It continues to be available in all 50 states, and it remains fully guaranteed against ACA penalties.
  • If and when the regulatory hammer drops on Wellness-only plans, our ABC model will not be negatively affected. We will continue to provide and support all of our offerings – and perhaps create additional options – while others will be forced to radically overhaul their entire product suite.

If you happen to see (or better yet, if you happen to be) the red-faced man, I really hope we get another chance to talk.  We both might learn a few things – and hard as it may be to believe, I actually enjoy this stuff!

(And if you’re really a glutton for punishment, you can find all the legal citations to support the positions I took in this article in a “White Paper” that I recently published, under the catchy title “Compliance Challenges Due to Minimum Essential Coverage Standards in Current and Future Markets[8].”)

[1] WellSHARE™, WellCHOICE™, WellPLUS™
[2] See King v. Burwell 135 S. Ct. 2480 (2015); Nat. Fed. of Independent Business v. Sebelius 132 S. Ct. 2566 (2012); Internal Revenue Bulletin 2014-48, p. 903
[3] Patient Protection and Affordable Care Act §1301(b)(1)(B)
[4] PHSA § 2713
[5] Internal Revenue Notice 2014-69
[7] Ambulatory patient services; Emergency services; Hospitalization; Maternity and newborn care; Mental health and substance abuse services; Prescription drugs; Rehabilitative services and devices; Laboratory (Diagnostic) services; Preventive and Wellness; Pediatric dental and vision services