ACA Refresher for Employers: Affordable Coverage vs. Minimum Value Coverage
Generally, employer provisions of the Affordable Care Act say that an Applicable Large Employer (or ALE) has to offer affordable minimum essential coverage that provides minimum value to full-time employees and their dependents, or potentially face a penalty payment to the Internal Revenue Service.
To brush up on your ACA terminology, here’s how to tell affordable coverage from minimum coverage.
Affordable Coverage – If the lowest-cost health plan for employee-only coverage is 9.5 percent or less of your full-time employees’ household income, then that coverage is considered affordable. While it’s unlikely that an employer will know their employees’ household income, an employer can determine whether their offered coverage is affordable under various safe harbors.
The three affordability safe harbors are (1) the Form W-2 wages safe harbor, (2) the rate of pay safe harbor, and (3) the federal poverty line safe harbor. These safe harbors are all optional. An employer can use one or more of the safe harbors only if its full-time employees and their dependents have the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan providing minimum value for self-only coverage offered to the employee. An employer may choose to use one or more of the safe harbors for all of its employees or for any reasonable category of employees, provided it’s done on a uniform and consistent basis for all employees in a category. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost self-only option available to the employee that also meets the minimum value requirement.
Minimum Value Coverage – The ACA considers any employer-sponsored health plan that covers at least 60 percent of the total costs allowed by the plan to provide minimum value. At present, employers must use a minimum value calculator jointly developed by the Department of Health and Human Services and the IRS to determine if a plan with standard features provides minimum value.
Plans with nonstandard features are required to have an actuarial certification for their nonstandard parts.
For more information, employers can visit the ACA for Employers pages on IRS.gov, including the Minimum Value and Affordability page.