Under the Affordable Care Act (ACA), the minimum value standard is a benchmark that determines what kinds of coverage a health insurance plan must offer. The ACA states that all health plans offered by employers must be affordable and provide a minimum value in order to be able to avoid penalties (this includes grandmothered plans; see Pre-Existing Conditions, Lifetime and Annual Limits).
In this post, we find out What Is The Minimum Value Standard For Health Insurance, how to calculate minimum value standard, minimum value standard vs minimum essential coverage, and how do you know if a health plan meets the minimum value standard.
What Is The Minimum Value Standard For Health Insurance
Employers can find out if they’re in compliance with the minimum value requirement by using an online calculator at Healthcare.gov. The calculator takes plan details into account, including the amount that workers have to pay for premiums, deductibles, etc., as well as certain benefits included in the plan. Plans that cover at least 60 percent of total costs of care for a standard population are considered to provide at least a minimum level of coverage (the 60 percent figure is based on average per capita costs incurred by people who are enrolled in employer-sponsored coverage).
Under the Affordable Care Act (ACA), the minimum value standard is a benchmark that determines what kinds of coverage a health insurance plan must offer.
The Affordable Care Act (ACA) requires that health insurance plans offered to individuals and small groups meet a minimum value standard. This means that the plans must cover at least 60 percent of the total cost of care for a standard population. The ACA also mandates certain benefits, such as prescription drugs and preventive care, which must be included in all plans. Plans that meet this minimum value standard are considered to provide at least a minimum level of coverage.
The minimum value standard is one of many requirements that employers need to meet when providing health coverage to their employees.
The minimum value standard is one of many requirements that employers need to meet when providing health coverage to their employees. Minimum value means that the plan covers at least 60% of the total allowed cost of benefits, as determined by reference to a standardized plan known as a “benchmark” plan (or Federal Employee Health Benefits Program Standard Option).
If an employer fails to meet this requirement, they may owe an excise tax on their contributions for health coverage provided through a group health plan.
How the Minimum Value Standard Works
How the Minimum Value Standard Works
The minimum value standard, which is set at 60 percent by 2020, works by setting a benchmark for how much of your money should go towards your health insurance plan. You can think of it as an average amount that’s spent on an annual basis per covered individual. This means that if you’re paying less than this amount in premiums and copays, it doesn’t meet the minimum value standard.
The only way to calculate whether or not your plan meets this requirement is by checking its summary of benefits and coverage (SBC). The SBC shows how much each service costs within a different tier of benefits—for example: one visit to the doctor would cost $30 under Tier 1 but $150 under Tier 4. This helps determine whether or not your plan provides adequate coverage based on what services are being provided within those tiers.
The ACA states that all health plans offered by employers must be affordable and provide a minimum value in order to be able to avoid penalties (this includes grandmothered plans; see Pre-Existing Conditions, Lifetime and Annual Limits and Grandmothered Health Plans). Employers can find out if they’re in compliance with the minimum value requirement by using an online calculator at Healthcare.gov. The calculator takes plan details into account, including the amount that workers have to pay for premiums, deductibles, etc., as well as certain benefits included in the plan.
The minimum value standard affects all health plans offered by employers (this includes grandmothered plans; see Pre-Existing Conditions, Lifetime and Annual Limits and Grandmothered Health Plans). Employers can find out if they’re in compliance with the minimum value requirement by using an online calculator at Healthcare.gov. The calculator takes plan details into account, including the amount that workers have to pay for premiums, deductibles, etc., as well as certain benefits included in the plan.
If you’re self-employed or a small business owner who buys your own health insurance, you’re also required to meet these requirements as long as your policy covers dependents up to age 26 (or up to age 29 if they’re full-time students).
Plans that cover at least 60 percent of total costs of care for a standard population are considered to provide at least a minimum level of coverage (the 60 percent figure is based on average per capita costs incurred by people who are enrolled in employer-sponsored coverage). Employers can also use one of three safe harbor checklists provided by the U.S. Department of Health and Human Services; if any of these criteria are met, then their plan complies with the minimum value standard.
The minimum value standard is a benchmark that determines what kinds of coverage a health insurance plan must offer. In general, plans that cover at least 60 percent of total costs of care for a standard population are considered to provide at least a minimum level of coverage (the 60 percent figure is based on average per capita costs incurred by people who are enrolled in employer-sponsored coverage). Employers can also use one of three safe harbor checklists provided by the U.S. Department of Health and Human Services; if any of these criteria are met, then their plan complies with the minimum value standard.
Whose Benefits Are Covered?
The Minimum Value Standard requires that all employees and their dependents must be covered under your health plan. You can choose to offer only certain benefits or the same level of coverage for all employees, but you must offer at least the same level of benefits as offered by this health insurance plan.
For example, if a company’s health plan offers dental coverage, then they should offer dental coverage under their minimum value standard. They do not have to include vision or mental health care in their minimum value standard because those are not mandated benefits for small businesses with fewer than 50 full time equivalent employees (FTEs).
how to calculate minimum value standard
If you’re an employer with 50 or more full-time equivalent employees (FTEs), you’re considered an applicable large employer (ALE) and are required to follow specific requirements set forth by the IRS and the Affordable Care Act (ACA).
One of these requirements is to offer health coverage to employees that meets minimum value (MV). That leaves ALEs with a big question: Which health plans are considered minimum value, and how do I know if the one I’m offering does?
This article has everything you need to know to determine if your health insurance plan meets the guidelines for minimum value, the penalties you may face if you don’t offer proper coverage, and alternatives to employer-sponsored group health plans that still meet minimum value.
What is minimum value?
Minimum value is a standard for measuring job-based health insurance plans to make sure they provide at least the minimum coverage mandated by employer shared responsibility provisions (ESPR).
Employer-provided health coverage meets minimum value if both of these apply:
However, if your plan meets these standards and is considered “affordable”, your employees won’t be eligible for a health insurance premium tax credit if they choose to purchase an individual marketplace insurance plan instead.
How do I know if my health coverage offers minimum value?
Generally speaking, if you provide an employer-sponsored plan that covers at least 60% of the total allowed cost of benefits1 meeting the requirements for any of the metallic tiers, like a 60% coverage bronze-level plan to a 90% coverage, platinum-level plan, then your policy meets MV standards.
If your plan doesn’t meet those requirements, you’ll need to run more calculations on your own to see if it’s still compliant.
The easiest way to determine if your health coverage offers minimum value is by using the Department of Health and Human Services’ minimum value calculator. To calculate minimum value2, you simply enter the requested information about your plan into the calculator, such as its deductibles and copays, and it will tell you whether or not your plan provides minimum value.
However, if you’d rather do the calculations manually, the MV percentage is determined by dividing the cost of certain benefits the plan would pay for by the cost of certain benefits for “the standard population,” including the amounts the plan pays and amounts the employee pays through cost-sharing. Then, you’ll convert that number into a percentage.
What are safe harbors?
While the above calculations are a good way to size up your employer-sponsored health plan, there are a few quick standards you can measure your plan. These are known as “safe harbor” plan designs.
Safe harbors3 are intended to provide an easy way to determine whether your qualified health plan meets the MV threshold level without using the calculator.
What happens if I don’t provide a plan with minimum value?
If you are an ALE who doesn’t provide compliant health insurance policies to your employees, you’ll potentially be penalized with a fine for not complying with MV standards.
Only full-time employees, not full-time equivalents, are counted for calculating the penalty. So while you’re considered an ALE if you have more than 50 full-time equivalent employees, you only are subject to a penalty if you have more than 30 full-time employees—not full-time equivalents.
If you have more than 30 full-time employees and don’t offer a plan that complies with MV standards to at least 95% of your employees, then the annual per-employee penalty for providing unaffordable coverage for 2022 is $4,1204. To get the monthly per employee penalty, employers can divide the annual penalty by 12.
To get the total monthly penalty, employers can multiply the number of full-time employees receiving a health insurance premium tax credit by the monthly per-employee penalty. Again, only full-time employees, not full-time equivalents, are counted for calculating the penalty.
Does a health reimbursement arrangement meet minimum value?
If you’re interested in reimbursing your employees for their individual health insurance premiums and other medical services and expenses through a health reimbursement arrangement (HRA), there are a couple of options that meet MV standards.
Individual coverage HRA
Whether you want to offer an HRA as a stand-alone benefit or as an option for your employees that don’t qualify for your employer plan, an individual coverage HRA (ICHRA) is a great option that meets the minimum value standard.
Through an ICHRA, your employees purchase their own qualifying individual health insurance and other medical care, then you reimburse them, tax-free, up to a monthly allowance amount that you set up.
As a general rule, ICHRAs use the lowest-priced silver plan on the health insurance marketplace as a benchmark for determining whether the ICHRA is affordable and has minimum value coverage. Silver plans provide coverage that exceeds minimum value, so ICHRAs are considered a plan that meets minimum value for its participants.
Integrated HRA
If you currently have a group health policy, but want to supplement it with an HRA, an integrated HRA, also known as a group coverage HRA (GCHRA), is a perfect choice. While most traditional group plans easily meet MV standards, they don’t always cover all your employees’ healthcare necessities.
By combining your group health insurance plan with a GCHRA, your employees are covered by MV standards, while also getting tax-free reimbursements on their out-of-pocket costs that aren’t covered in your employer-sponsored plan.
While many integrated HRAs are carrier-specific, PeopleKeep offers an integrated HRA that can be integrated with any group health plan so your employees can have the flexibility to select the group health plan and medical care that meet their needs.
minimum value standard vs minimum essential coverage
Minimum essential coverage is a statement used in the Affordable Care Act (ACA) that refers to a minimum level of coverage that employers must provide to their employees and that families must obtain. It is under a section called the “Shared Responsibility for Health Care.“
When employees or families do not have the minimum essential coverage (MEC) required, there are going to be “shared responsibility fees” charged. The required health insurance in this part of the ACA provides rules for employers concerning how much of the premium that the employer must cover and the amount of out-of-pocket costs that a health plan must cover.
The minimum essential coverage provides guidance as to the types of coverage that must be supplied by the employer or family in order to meet the shared responsibility and avoid the fees. Any plan offering major medical, for instance, must provide 10 specific benefits.
The benefits were structured to change in 2014. At that time, each health plan offered 10 “essential health benefits” (EHBs). They also had a series of metallic levels that started providing a minimum of 60 percent of the “actuarial value,” or of the annual costs for each person. Plans were also offered for catastrophes for individuals who were under 30, but they had fewer benefits.
ObamaCare was set up so that people could obtain minimum essential care and avoid the fee established in the ACA. The plan required that the health plan must be maintained for the entire year. Not having it meant that you must obtain an exemption, or be required to pay a fee for every month you do not have it. There is an allowance of going without it for three consecutive months a year, which was caused by a coverage gap exemption.
Whether or not you have the minimum essential coverage is reported on your Federal tax forms annually. It is reported by the month and if you have coverage for any dependents.
The ACA defines the minimum essential coverage as being what most group health plans include that are offered by large or small employers, or by health coverage offered by the government. When a health plan only offers “excepted benefits,” it does not qualify as MEC. This type of plan only provides benefits that are limited in scope and they are exempt from many of the requirements given by the ACA and HIPAA.
Certain other plans do qualify as MEC, such as plans that provide medical assistance to refugees and Medicare Advantage plans. Starting on January 1, 2014, the Individual Mandate requires that most people get and maintain a policy that meets Minimum Essential Coverage for their family and themselves, or they must pay a fine.
Individuals can get plans that meet the MEC through plans offered by their employer, the MarketPlace, or other sources in order to comply with the Individual Mandate. Obtaining a plan will enable them to avoid the tax.
Starting on January 1, 2015, the Employer Mandate will begin. This Mandate (also referred to as Employer Shared Responsibility) will mean that employers will pay considerable fines if as many as 95 percent of their employees who are full-time do not meet at least the MEC. In order for an employer to avoid this penalty, large employers will have to provide coverage that not only meets MEC, but it also must be affordable and provide Minimum Value.
Benefits and Minimum Essential Coverage Types
A benefit of the Affordable Care Act is that many new rules and regulations were made in the health insurance field enabling powerful changes that brought about new rights, benefits and protections for the consumer. Some health insurance plans are required to follow all of the new rules, but some plans do not need to.
Most of the plans offering major medical do follow the requirements of the ACA, which means that they meet the requirements of the ACA. MEC is based more on a particular source rather than on compliance with a specific rule or benefit. Avoiding the fee means you must meet the “minimum essential coverage” and keep it in force for the entire year. The MEC requirement applies to all Government insurance, job-based insurance and most other forms of private insurance.
Generally speaking, if you were able to hold on to your health insurance after the start of 2014, or if you bought major medical insurance from the marketplace, or were covered through work or by a public program, you most likely met the requirements of minimum essential coverage.
If you bought health care coverage through an employer, it meets MEC and provides you with:
Students going to college are eligible to get health insurance from their school. It will meet MEC requirements and will remain in force as long as you are enrolled.
Health insurance programs through the Government will also meet the requirements for MEC. They include:
When you buy a policy personally from an insurance company, it will be different than what an employer offers in a group plan.
Reporting Minimum Essential Coverage
On your Federal income tax return, you will need to report which months you had coverage that met the requirements of MEC, and what dependents you had living with you. If you or your dependent did not have coverage for a month, or if you did not have an exemption, it will be necessary to pay a fine. It is called a Shared Responsibility Payment, and it is capped off at the level of the Bronze payment plan. This will need to be done for each month you did not have insurance.
When you buy a health plan that meets MEC, your plan provider will send you a form (1095-A, 1095-B, or a 1095-C) for your taxes. It will reveal which months you were covered and how much you received to assist you in costs. That form will be used to fill out Form 8962, which is the Premium Tax Credit (PTC), if you received any assistance in costs. Any other forms associated with your tax return need to be attached to your tax return, and the calculated Shared Responsibility Payment, when you indicate minimum essential coverage.
Understanding the Difference between Minimum Essential Coverage, Essential Health Benefits, Minimum Value, and Actuarial Value
Some of the terms found within the Affordable Care Act may seem similar and can result in some confusion. Every one of the terms carry different meanings and have different responsibilities to both employers and to families or individuals. They also carry different penalties, subsidies and taxes.
Minimum Essential Coverage provides fewer benefits than are found in the Essential Health Benefits (EHB). It enables an individual to obtain enough coverage to avoid having to pay the penalty tax. It also enables large employers to not suffer the penalty for being an employer who does not provide a proper health plan to the employees.
Essential Health Benefits refers to the 10 main benefits that every qualified health plan (QHP) must provide. When a group plan fails to offer an EHB, it most likely will still meet the MEC, enabling those covered to escape the tax for not meeting the required individual mandate.
Minimum Essential Coverage is also different than Minimum Value (MV). The Minimum Value refers to the comprehensiveness that a plan offers. An MEC, for instance, has a MV of 60 percent, which is the Actuarial Value. This means that an MEC pays a minimum of 60 percent of all benefits provided in the health plan in terms of actuarial value.
Even when a large employer does not offer a plan that will meet Minimum Value or affordability; it may still meet MEC, which allows the employee to avoid the penalty tax. “Affordability” refers to the cost that must be less than 9.5 percent of the employee’s income for self-only coverage.
Essential Health Benefits (EHB)
Although a health plan may not cover Essential Health Benefits, it may still offer enough benefits to meet the requirements of the Minimum Essential Coverage. The term Essential Health Benefits refers to the 10 different categories of the core benefits that a QHP must provide.
The Essential Health Benefits package will include at least 10 specific benefits and other services. It will also be specific about cost sharing, an adjusted community value, and minimum value. The 10 specific benefits include:
One more important reason for the creation of Essential Health Benefits is that the ACA eliminates the imposition of annual or lifetime dollar limits on EHB.
Minimum Value (MV)
Health plans that offer a Minimum Value may still meet the requirements for MEC. Minimum Value ensures that policies provide suitable coverage above a threshold level. Because the plan must provide at least 60 percent of the actuarial value, it means that the employee will only be paying 40 percent or less for co-insurance, deductibles, copayments, and out of pocket expenses. The MV does not include the cost of the premium.
In 2012, when the ACA was written, the HHS found that nearly all health care plans at the time provided an actuarial value of at least 60 percent. Less than 2 percent of large employers were less than this amount.
Actuarial Value (AV)
The Actuarial Value of any health insurance policy is the proportion of medical expenses covered on average for people living in a standard population. This figure is compared to how much the insured might pay on average for additional costs, such as co-pay, deductibles, co-insurance, and expenses out-of-pocket. The AV is a measurement of how generous a health plan will be to the insured.
The AV does not consider the cost of premiums. It also does not take into account how broad a network is, its quality, or its customer service. With a 60 percent AV, it means that you will be paying 40 percent of all covered costs up until the time you reach your plan’s cost sharing or limit for out-of-pocket expenses.
Various Plans in the ACA
Health insurance companies provide various policies based on cost. Companies that provide policies for small groups and individuals are required to specify the Actuarial Value of all policies. Here are the metallic values of qualified policies:
All insurance plans must come within 2 percent of the Actuarial Value. A Gold plan, for instance, must pay between 78 percent – 82 percent of the covered costs. The greater percentage covered means that there will be a higher cost, but less in personal expenses.
Rules for Minimum Essential Coverage
Any health plan that provides minimum essential coverage must follow the ACA’s guidelines, including all rules, regulations, and it will have to provide all the benefits, protection, and rights in that plan.
It is important to understand that the term of minimum essential coverage refers to the source, rather than to the benefits offered. Sources include Medicare, Medicaid, TriCare, the Marketplace, and may be a little different with each source.
Some common rules do apply to all sources, but the differences are designed to ensure that all sources can provide minimum essential coverage. These may include:
If you need help in ensuring that you get a health insurance policy that provides minimum essential coverage, or if you are an employer that needs help in providing group insurance that meets the ACA requirements, you can post your legal need on the UpCounsel’s marketplace. UpCounsel will only use lawyers who have graduated from the top five percent of law schools such as Harvard Law and Yale Law, and who also have an average of 14 years of legal experience. Many of them have worked with or on behalf of such companies as Google, Menlo Ventures, and Airbnb.
how do you know if a health plan meets the minimum value standard
If you’re an employer with 50 or more full-time equivalent employees (FTEs), you’re considered an applicable large employer (ALE) and are required to follow specific requirements set forth by the IRS and the Affordable Care Act (ACA).
One of these requirements is to offer health coverage to employees that meets minimum value (MV). That leaves ALEs with a big question: Which health plans are considered minimum value, and how do I know if the one I’m offering does?
This article has everything you need to know to determine if your health insurance plan meets the guidelines for minimum value, the penalties you may face if you don’t offer proper coverage, and alternatives to employer-sponsored group health plans that still meet minimum value.
Learn about how health reimbursement arrangements (HRAs) provide minimum value in our complete guide
What is minimum value?
Minimum value is a standard for measuring job-based health insurance plans to make sure they provide at least the minimum coverage mandated by employer shared responsibility provisions (ESPR).
Employer-provided health coverage meets minimum value if both of these apply:
However, if your plan meets these standards and is considered “affordable”, your employees won’t be eligible for a health insurance premium tax credit if they choose to purchase an individual marketplace insurance plan instead.
How do I know if my health coverage offers minimum value?
Generally speaking, if you provide an employer-sponsored plan that covers at least 60% of the total allowed cost of benefits1 meeting the requirements for any of the metallic tiers, like a 60% coverage bronze-level plan to a 90% coverage, platinum-level plan, then your policy meets MV standards.
If your plan doesn’t meet those requirements, you’ll need to run more calculations on your own to see if it’s still compliant.
The easiest way to determine if your health coverage offers minimum value is by using the Department of Health and Human Services’ minimum value calculator. To calculate minimum value2, you simply enter the requested information about your plan into the calculator, such as its deductibles and copays, and it will tell you whether or not your plan provides minimum value.
However, if you’d rather do the calculations manually, the MV percentage is determined by dividing the cost of certain benefits the plan would pay for by the cost of certain benefits for “the standard population,” including the amounts the plan pays and amounts the employee pays through cost-sharing. Then, you’ll convert that number into a percentage.
What are safe harbors?
While the above calculations are a good way to size up your employer-sponsored health plan, there are a few quick standards you can measure your plan. These are known as “safe harbor” plan designs.
Safe harbors3 are intended to provide an easy way to determine whether your qualified health plan meets the MV threshold level without using the calculator.
What happens if I don’t provide a plan with minimum value?
If you are an ALE who doesn’t provide compliant health insurance policies to your employees, you’ll potentially be penalized with a fine for not complying with MV standards.
Only full-time employees, not full-time equivalents, are counted for calculating the penalty. So while you’re considered an ALE if you have more than 50 full-time equivalent employees, you only are subject to a penalty if you have more than 30 full-time employees—not full-time equivalents.
If you have more than 30 full-time employees and don’t offer a plan that complies with MV standards to at least 95% of your employees, then the annual per-employee penalty for providing unaffordable coverage for 2022 is $4,1204. To get the monthly per employee penalty, employers can divide the annual penalty by 12.
To get the total monthly penalty, employers can multiply the number of full-time employees receiving a health insurance premium tax credit by the monthly per-employee penalty. Again, only full-time employees, not full-time equivalents, are counted for calculating the penalty.
Does a health reimbursement arrangement meet minimum value?
If you’re interested in reimbursing your employees for their individual health insurance premiums and other medical services and expenses through a health reimbursement arrangement (HRA), there are a couple of options that meet MV standards.
Individual coverage HRA
Whether you want to offer an HRA as a stand-alone benefit or as an option for your employees that don’t qualify for your employer plan, an individual coverage HRA (ICHRA) is a great option that meets the minimum value standard.
Through an ICHRA, your employees purchase their own qualifying individual health insurance and other medical care, then you reimburse them, tax-free, up to a monthly allowance amount that you set up.
As a general rule, ICHRAs use the lowest-priced silver plan on the health insurance marketplace as a benchmark for determining whether the ICHRA is affordable and has minimum value coverage. Silver plans provide coverage that exceeds minimum value, so ICHRAs are considered a plan that meets minimum value for its participants.
Integrated HRA
If you currently have a group health policy, but want to supplement it with an HRA, an integrated HRA, also known as a group coverage HRA (GCHRA), is a perfect choice. While most traditional group plans easily meet MV standards, they don’t always cover all your employees’ healthcare necessities.
By combining your group health insurance plan with a GCHRA, your employees are covered by MV standards, while also getting tax-free reimbursements on their out-of-pocket costs that aren’t covered in your employer-sponsored plan.
While many integrated HRAs are carrier-specific, PeopleKeep offers an integrated HRA that can be integrated with any group health plan so your employees can have the flexibility to select the group health plan and medical care that meet their needs.
Conclusion
When it comes to the health coverage you offer your employees, not all job-based health plans are created equal. Choosing a health plan that meets minimum value is essential for ALEs to stay compliant and attract and retain employees looking for meaningful coverage from their employer-sponsored plan.
If you think a health reimbursement arrangement is the health benefit that’s right for your organization, then you’re in luck. Schedule a call with our personalized benefit advisors, and we’ll get you set up with everything you need to offer a customized HRA to your employees.