What is minimum essential coverage (MEC)?

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 While the federal tax penalty for not having MEC is no longer in effect for individuals, MEC is essential for various types of employer-sponsored health benefits.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).

Is your organization looking to offer affordable health benefits? Learn more about how HRAs work for employees in our guide

What qualifies as minimum essential coverage?

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:

• Employer-sponsored coverage
• Individual health coverage
• Coverage under government-sponsored programs

Employer-sponsored coverage

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:

• Employer-provided group health plans
• COBRA continuation coverage
• Retiree coverage

Individual health coverage

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:

• Health insurance you purchased from an insurance company directly
• Health insurance you purchased through the health insurance marketplace
• Most health insurance provided through a student health plan
  • Check with your school to see if your plan counts as qualifying health coverage

Coverage under government-sponsored programs

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:

• Medicare Part A coverage
• Medicare Advantage plans
• Most Medicaid coverage
• Children’s Health Insurance Program (CHIP)
• Most types of TRICARE coverage under Chapter 55, Title 10 of the United States Code
• Comprehensive healthcare programs offered by the Department of Veterans Affairs
• State high-risk health insurance pools
  • Must be recognized as minimum essential coverage by the Department of Health and Human Services
• Health coverage provided to Peace Corps volunteers
• Department of Defense Nonappropriated Fund Health Benefits Program
• Refugee Medical Assistance

What doesn’t qualify as minimum essential coverage?

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:

• Ancillary benefits coverage consisting solely of excepted benefits, such as:
• Stand-alone dental insurance
• Stand-alone vision insurance
• Accident or disability income insurance
• Workers’ compensation insurance
• Certain Medicaid policies, including:
• Medicaid that provides only family planning services, tuberculosis-related services, or coverage limited to the treatment of emergency medical conditions
• Pregnancy-related Medicaid coverage
• Medicaid coverage for the medically needy
• Section 1115 Medicaid demonstration projects
• Certain TRICARE coverage, including:
• Space available TRICARE coverage provided under Chapter 55 of Title 10 of the United States Code for individuals who aren’t eligible for TRICARE coverage for health services from private sector insurance providers
• Line of duty TRICARE coverage provided under Chapter 55 of Title 10 of the United States Code
• Certain AmeriCorps coverage, including:
• AmeriCorps coverage for those serving in programs receiving AmeriCorps State and National grants
• AfterCorps coverage purchased by returning members of the Peace Corps

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.

Will I be penalized if I don’t have minimum essential coverage?

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:

• California⁴
• Massachusetts⁵
• New Jersey⁶
• Rhode Island⁷
• Vermont⁸ (no penalty)
• Washington, D.C.⁹

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.

Do I need minimum essential coverage to be eligible for an HRA?

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:

• The qualified small employer HRA (QSEHRA)
• The individual coverage HRA (ICHRA)
• The group coverage HRA (GCHRA), also known as an integrated HRA

The qualified small employer HRA (QSEHRA)

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.

The individual coverage HRA (ICHRA)

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:

• Qualified health plans purchased on the open market, the ACA healthcare marketplace plans, or plans on a private exchange as long as they cover MEC with no annual or lifetime limits
• Medicare Part A and B (together) and Part C can be integrated with an ICHRA and are eligible for premium reimbursements
• Student health insurance policies, except for self-insured student health coverage

An ICHRA isn’t compatible with the following types of medical plan coverage:

• Group health plans, including plans from a spouse or parent
• Association health plans
• COBRA
• Healthcare sharing ministries
• Self-insured student health plans
• Short-term limited duration insurance
• TRICARE

The integrated HRA

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.

Conclusion

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.

1. https://www.kff.org/other/state-indicator/total-population/?dataView=1%C2%A4tTimeframe%3D0&currentTimeframe=0&selectedDistributions=employer&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
2. https://aspe.hhs.gov/reports/health-coverage-changes-2021-update
3. https://www.tangohealth.com/complete-guide-state-healthcare-mandates/
4. https://www.ftb.ca.gov/about-ftb/newsroom/health-care-mandate/personal.html
5. https://www.mass.gov/info-details/health-care-reform-for-individuals
6. https://nj.gov/treasury/njhealthinsurancemandate/index.shtml
7. https://tax.ri.gov/guidance/health-insurance-mandate
8. https://info.healthconnect.vermont.gov/mandate_FAQ
9. https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/FAQ%20reporting%20SRP%20Update.3.31.20.pdf