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Warning! Look Out for the Pandemic MEC Bomb

(Coninued from LinkedIn)

For those brokers who make a living in the service sector (hourly employee) markets, and have recommended MEC plans as a solution to the Affordable Care Act Employer Mandate. 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, then likely already aware of MEC and MEC Plus plans are self-funded (in most cases this is a requirement to avoid the more stringent state insurance department regulations)

So where is the time-bomb? Before I answer that question, let me ask you: Does your MEC plan have reinsurance?

Does your MEC plan have reinsurance? If not (and more than 70% of these plans do not) here is what you can likely expect after COVID19 and what may well and truly blow up your well-performing MEC plan and you and your client with it. ……………….

Background

First some historical review: MEC plans came about in the early stages of the Affordable Care Act and were designed for low wage employers to affordably comply with ACA minimum coverage requirements (100% coverage for certain listed preventive and wellness services) MEC plans have proven to be very popular among low wage workforce industries (food, assisted living, agricultural and retail) The proliferation of these plans has been largely driven by Third Party Administrators who immediately saw an opportunity to distribute low cost, low-risk benefits, that just happen to contain the potential for very large margins through a relatively simple administrative effort.

Although self-funded, MEC exposures were so minor (no risk catastrophic claims) and because utilization of preventive services so low, there was no demand for aggregate reinsurance and zero concern about specific stop loss.

Tick Tock

And along comes COVID19. Fast forward to plan years 2020 and 2021. The original (and very predictable) 67 MEC diagnostic codes are expected to balloon to upwards of 100 to 110. Each of these new codes is related to virus testing and treatment protocols that did not exist in the last 8 years. There are few actuarial tables around to predict the effect this will have on expected MEC claims, but it is certain that there will be aggregate expenses that far exceed current funding levels. This can become a very big problem for the broker who must now explain to his client exactly why he is getting monthly claims calls that were never on the radar in the early years. This could be particularly worrisome since there are a number of carriers sponsored MEC plans that do include monthly aggregate reinsurance to protect against this very eventuality. Your client may rightfully ask you why you chose to recommend a plan that did not.

Bottom Line – Check your current plans or ask the plan sponsors to confirm that they have monthly aggregate reinsurance built into the MEC admin costs. Fair warning, there is about a 70% chance that it is not. The good news is that we can easily correct this and avoid this totally unnecessary client bombshell, give me a call and we can discuss. Good luck and stay well. -Bill

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