As HR professionals prepare for open enrollment, it’s important to ensure that the health plans offered to employees meet the Affordable Care Act (ACA) standards for Minimum Essential Coverage (MEC), Minimum Value (MV) and Affordability. Employers that fall under the ACA’s Applicable Large Employer (ALE) designation, those with 50 or more full-time and full-time equivalent employees, must carefully review these criteria each year to remain compliant and avoid costly IRS penalties.
Minimum Essential Coverage (MEC)
At its core, MEC refers to the type of health coverage an employer must offer to avoid ACA penalties. To meet MEC standards, a plan must provide coverage for at least a basic level of healthcare services, such as preventive and wellness services, physician visits, and hospitalization. Most traditional employer-sponsored group health plans satisfy the MEC requirement automatically, but certain “skinny plans” or limited-benefit options may not.
To determine whether a plan meets MEC, employers should verify that the plan is designated as MEC by the insurance carrier or benefits administrator. Fully insured group plans generally include this designation in the Summary of Benefits and Coverage (SBC) or plan documentation. For self-funded plans, employers should ensure that the plan includes the categories of services outlined under the ACA’s definition of MEC and have this verified by the plan’s third-party administrator (TPA) or benefits consultant. Employers should retain written confirmation that the plan qualifies as MEC in their compliance files.
If an ALE fails to offer MEC to at least 95 percent of its full-time employees and their dependents, the employer may face a significant penalty under ACA Section 4980H(a), especially if even one employee obtains coverage through the Marketplace and receives a premium tax credit.
Minimum Value (MV)
Offering MEC alone is not enough to stay compliant. The ACA also requires that the coverage provide Minimum Value, meaning the plan must pay for at least 60 percent of the total allowed costs of benefits expected under the plan, leaving the employee responsible for no more than 40 percent through deductibles, copayments, and coinsurance.
To determine whether a plan provides Minimum Value, employers should review the plan’s actuarial value. Most insurance carriers perform this analysis and certify whether a plan meets the 60 percent requirement. For self-funded plans, employers can use the IRS and Department of Health and Human Services (HHS) Minimum Value Calculator, or obtain a certification from an actuary to confirm that the plan’s cost-sharing structure meets the threshold. The SBC often states whether the plan meets MV, making it a useful document for HR professionals to review and retain as evidence of compliance.
A plan that fails the Minimum Value test may expose an employer to a different type of ACA penalty under Section 4980H(b). This can occur when a plan’s cost-sharing or limited coverage shifts too much financial responsibility to the employee. During open enrollment, HR teams should verify that all available plan designs meet or exceed the 60 percent threshold.
Affordability
Even if a plan provides both MEC and MV, it must also be affordable for employees. Under the ACA, coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed a set percentage of their household income. For the 2026 plan year, the affordability percentage is 9.96 percent.
Employers can use one of three IRS safe harbors: the Federal Poverty Line, Rate of Pay, or Form W-2 safe harbor to measure affordability. Reviewing contribution rates during open enrollment is essential to ensure that employee premiums remain within these limits, especially if there are midyear changes to compensation or coverage tiers.
Why Review These Requirements Now
The fall open enrollment period is the best time to verify that your company’s health coverage offerings meet ACA compliance standards. Adjusting employee contributions, plan design, or eligibility rules now can prevent penalties later when 1095-C and 1094-C reporting is completed in early 2026.
HR professionals should work closely with carriers, brokers, and benefits administrators to confirm that all offered plans meet MEC, MV, and affordability tests. Proper documentation, accurate eligibility tracking, and timely updates to employee data are all key to maintaining compliance.
Offering plans that satisfy ACA requirements not only avoids IRS penalties but also strengthens employee trust by ensuring access to meaningful, affordable health coverage, an essential part of every employer’s total rewards strategy.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
