To be compliant with the Affordable Care Act, the health insurance plans that you offer your employees must meet the minimum essential coverage requirement. It is important to understand what minimum essential coverage is as you review your current plan to determine whether you are in compliance with the requirement. You’ll also need to understand what your responsibilities are, as an employer, to employees with health-care-related costs beyond what is required.
What Is the Minimum Essential Coverage Requirement?
Minimum essential coverage is coverage that meets at least 60 percent of an average person’s health costs, in accordance with a methodology set forth by the Department of Health and Human Services (HHS). This calculation, which may be approximated using a minimum value calculator provided by the IRS and HHS, is based on certain costs considered essential under an insurance plan and the maximum out-of-pocket expenses allowed under the plan. The calculator, which is downloadable as a spreadsheet, can assist you in determining whether your plan provides the required level of coverage for health costs necessary to qualify as minimum essential coverage.
What Are an Average Person’s Health Costs?
Since the definition for minimum essential coverage is based on the health costs of an “average person,” what exactly defines an average person? According to the methodology information used in the development of the minimum value calculator, the average person’s profile is based on the “population of health plan enrollees resembling those likely to be covered by large group employer-sponsored health insurance in 2014, as well as specific cost-sharing data.” In other words, the formula used to determine the average person is based on the assumption of what a typical employee is who participates in and uses an employer-sponsored health insurance plan.
Requirements for Additional Coverage
As long as health insurance plans provide coverage for those costs that are at least 60 percent of the average allowed costs of all services that are incurred by a standard population (as was determined as part of the methodology for the MV calculator), you will not be subject to a penalty. Employees with particular conditions who may be in need of additional coverage beyond the minimum essential coverage may still obtain that coverage as a stand-alone plan or in the Health Insurance Marketplace. Your responsibility as an employer is to provide options that meet the definition of minimum essential coverage under the law, although you can always provide a higher level of coverage if you choose.
The minimum value calculator is one of the tools that can assist you in determining if your employer-sponsored plan is providing the minimum essential coverage under the ACA. You should consider performing tests on your coverage periodically prior to the January 1, 2016, deadline — even if your coverage isn’t changing — in order to be confident that the health insurance protection that you’re offering your employees is meeting the basic requirements and that you’re in compliance with this important provision of the Affordable Care Act.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
Donald Parker has more than 20 years of experience in the insurance and financial services industry with several Fortune 500 companies. He holds a life, accident and health insurance license in Virginia. He has been FINRA Series 7, 24, 63 and 65 registered and specializes in the areas of long-term care, senior needs, retirement and employee benefit planning.