Look Out for the MEC Bomb

Read this if you recommended or sponsored a MEC (Minimum Essential Coverage) ACA Compliant Platform (particularly if your recommended MEC plan does not have aggregate reinsurance)

This is for all of those brokers who make a living in the service sector (hourly employee) markets and have cleverly recommended MEC plans as a solution to the Affordable Care Act, Employer Mandate. Warning! There are some rather dramatic and unanticipated consequences coming down soon, and we think you should be aware of them.

If the above describes you, likely you are already aware that MEC and MEC Plus plans are self-funded (in most cases this, by definition, required by law)

So where is the time-bomb? Before I answer that question, let me ask you this: Does your MEC plan have aggregate reinsurance? If not (and more than 70% of these plans do not) prepare yourself and your staff for the explosion in client anger, that you can expect after COVID19.

Let us Review

MEC plans came about in the early stages of the Affordable Care Act and were an accidental loophole (that nobody in government planned for) that significantly benefited service-sector employers, who found that by using these plans, they could affordably comply with ACA Employer Mandate or “A” Penalty (100% coverage for certain listed preventive and wellness services) MEC plans have proven to be very popular among certain industries (food, assisted living, agricultural and retail) The proliferation of these plans has been largely a result of aggressive marketing by Third Party Administrators who instantly saw an opportunity to move into the low cost, low-risk benefits marketplace, that just happened to contain the unusually high marginal profits, with relatively simple administrative effort. Because specific claims exposure is minimal (no risk of catastrophic claims) and aggregate utilization of preventive services low, there was really no demand for reinsurance and zero concern about potential claims calls to employers.

The surge in Diagnostic Codes

Along comes COVID19. Fast forward to plan years 2020 and 2021. The original (and predictable) 67 MEC diagnostic codes are already ballooning to upwards of 100 to 110. Each of these new codes are directly, or indirectly related to Coronavirus testing and treatment, none of which existed to any great degree in the last 8 years. There are few actuarial tables that predict the effect this will have on MEC claims, but one thing is certain, there will be aggregate expenses that far exceed current funding levels. This will become a very big client relations problem for the broker, who must now explain why his client is getting monthly claims calls, something that rarely if ever happened in prior years.

Brokers should be worried. They should also ask some direct questions of the MEC sponsor/carrier before clients start asking why they are paying three times more for the MEC component than they did in prior years.

Bottom Line – Check your current plans for reinsurance, or ask the plan sponsors to confirm that they will be adding it to the plan. Fair warning, there is about a 70% chance that YOUR plan does not have reinsurance. The good news is that we can easily correct this and head off this totally unnecessary client bombshell. As always, I am happy to discuss it with you. Good luck and stay well. -Bill

Exploding Claims Costs

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