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:
- The plan pays at least 60% of the total allowed cost of benefits that are expected to be incurred.
- The plan benefits include substantial coverage of physician services and inpatient hospital services.
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.
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.
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.
This article was originally published on May 10, 2021. It was last updated on July 29, 2022.