How is MEC status determined?
The IRC defines a seven-year testing period as the seven years that begin at issue of the policy or upon any Material Change. To determine if an insurance policy is a MEC, a premium limit, known as a seven-pay limit, is set.
This limit is defined at the beginning of the testing period based on IRC rules. The policy is tested for MEC status against the premium limit during the testing period. This is known as a seven-pay test.
For a policy covering a single insured, if benefits are reduced during a testing period, it usually is necessary to reapply the seven-pay test based on those reduced benefits.
The seven-pay test compares the cumulative premiums actually paid during the testing period against the cumulative seven-pay limit for that same period. The cumulative amount paid at all times in the testing period must not exceed the cumulative seven-pay limit or the policy will become a MEC.