If you’re an employer with 50 or more full-time equivalent employees (FTEs), you’re considered an applicable large employer (ALE) and must 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 two big questions: Which health plans are considered minimum value? And how do you know if the one you’re offering meets that requirement?
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 a traditional employer-sponsored group plan that still meet minimum value.
What is minimum value?
Minimum value is a standard for measuring job-based coverage to ensure it provides at least the minimum coverage mandated by employer-shared responsibility provisions.
Employer-provided health coverage meets minimum value if both of these situations apply:
- The plan pays at least 60% of the total cost of medical services for the standard population.
- The plan benefits include substantial coverage of physician services and inpatient hospital services.
If your employer-sponsored plan meets these standards and is considered “affordable,” your employees won’t be eligible for a health insurance premium tax credit. This is true even if they choose to forgo your plan and instead purchase an individual insurance plan on the federal health insurance exchange or a state-based exchange.
If you’re struggling with affordability determination, you can use our affordability calculator to help get you started.
How do I know if my health coverage offers minimum value?
Generally, if you provide an employer-sponsored plan that covers at least 60% of the total costs of what’s covered under the plan—including physician services and inpatient care—then your policy meets MV standards.
If you’re unsure if your plan meets this requirement, you’ll need to run some calculations to see if it’s 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 value, you simply enter the requested information about your plan into the calculator, such as its deductibles and copays. It will tell you whether or not your plan provides minimum value.
However, if you’d rather do the calculations manually, you can determine the MV percentage by dividing the cost of benefits the plan would pay for by the cost of benefits for “the standard population.” This includes the amount the plan pays and the amount 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 coverage, there are a few quick standards you can also leverage to measure your plan. These are known as “safe harbor” plan designs and require the employee to contribute no more than 9.5% of their W-2 wages, rate of pay, or the federal poverty line.
Safe harbors are intended to provide an easy way to determine whether your qualified health plan meets the MV threshold level without using the calculator since you aren’t likely to know your employees’ household income.
What happens if I don’t provide a plan with minimum value?
If you’re an ALE who doesn’t provide compliant health insurance policies to your employees, you’ll potentially be fined for not complying with MV standards.
Only full-time employees, not full-time equivalents, are counted for calculating the penalty. So while you’re 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. That’s because the penalty only applies to full-time employees minus the first 30.
If you have more than 50 FTEs and 30 full-time employees and don’t offer an employer plan that complies with MV standards to at least 95% of your full-time employees, then the annual per-employee penalty for providing unaffordable coverage for 2023 is $4,320. 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 (ICHRA)
Whether you want to offer an HRA as a stand-alone benefit or as an option for your employees that don’t qualify for an employer-sponsored group plan, an individual coverage HRA (ICHRA) is a great option that can meet the minimum value standard and help your employees better control their medical spending.
Through an ICHRA, your employees purchase their own qualifying individual health insurance and other medical care, and then you reimburse them tax-free up to a monthly allowance amount of your choosing. Reimbursable expenses include individual monthly premiums and other qualified out-of-pocket expenses.
As a general rule, ICHRAs use the lowest-priced silver benchmark 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 that cover the cost of a silver plan are typically considered a plan that meets minimum value for its participants.
If you currently have an employer-sponsored plan 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 employer-sponsored coverage with a GCHRA, your employees will meet MV standards and get tax-free reimbursements on their out-of-pocket costs that aren’t covered in your employer-sponsored plan. However, unlike an ICHRA, individuals eligible for a GCHRA can’t have their monthly premiums reimbursed.
While many integrated HRAs are carrier-specific, PeopleKeep offers an integrated HRA that can be combined with any employer-sponsored health plan so your staff 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 qualified health plan that meets minimum value is essential for ALEs to stay compliant and attract and retain employees seeking 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 March 17, 2023.