If you’re an employer with more than 50 full-time equivalent employees, you’re considered an applicable large employer (ALE) and are required to follow certain requirements set forth by the IRS and the Affordable Care Act (ACA).
One of these guidelines requires ALEs to offer health coverage for their employees that meets “minimum value.” 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 whether or not your health insurance plan meets the guidelines for minimum value, the penalties in place if you don’t offer the right level of health coverage, and alternatives to group health insurance 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 it provides at least the minimum amount of coverage for the purposes of the employer shared responsibility set by the ACA.
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 and inpatient hospital services
One thing to note: If your plan meets these standards and is considered “affordable,” your employees won’t be eligible for a 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 a plan that meets the requirements for any of the metallic tiers (bronze, silver, gold, and platinum) then your plan meets MV standards.
If your plan doesn’t meet those requirements, then you’ll need to do a bit more calculating on your own to see if it’s still compliant.
The easiest way to figure out 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, 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 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 health plan, there are a few quick standards you can measure your plan up against. These are known as “safe harbor” plan designs.
Safe harbors are intended to provide an easy way for you to determine whether your health plan meets the MV threshold without having to use the calculator.
Plan designs with the following specifications are proposed as safe harbors for determining MV:
- A plan with a $3,500 integrated medical and drug deductible, 80% plan cost-sharing, and $6,000 maximum out-of-pocket limit for employee cost-sharing
- A plan with a $4,500 integrated medical and drug deductible, 70% plan cost-sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to a health savings account (HSA)
- A plan with a $3,500 medical deductible, a $0 drug deductible, 60% plan medical expense cost-sharing, 75% drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10, $20, and $50 for the first, second, and third prescription drug tiers, with 75% coinsurance for specialty drugs
What happens if I don’t provide a plan with minimum value?
If you are an ALE who doesn’t provide a compliant health insurance plan to your employees, then 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 purposes of 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 do 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 offering unaffordable coverage for 2021 is $4,060. 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 that are receiving a premium tax credit by the monthly per-employee penalty. Only full-time employees, not full-time equivalents, are counted for purposes of 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 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 group health plan, an individual coverage HRA (ICHRA) is a great option that meets MV standards.
As a general rule, ICHRAs use the lowest-priced silver plan on the Health Insurance Marketplace as a benchmark plan for determining whether or not the ICHRA is affordable and has minimum value coverage. Silver plans provide coverage that exceeds minimum value, and as a result, ICHRAs are considered a plan that meets minimum value for its participants.
Group coverage HRA
If you currently have a group health policy, but want to supplement it with an HRA, a group coverage HRA (GCHRA) is a perfect choice. While most traditional group plans easily meet MV standards, they don’t always cover all of the healthcare needs your employees have.
By combining your group health plan with a GCHRA, your employees are safely covered by MV standards through your group plan, while also getting tax-free reimbursements on their out-of-pocket costs that aren’t covered in the group plan.
When it comes to the health coverage you offer your employees, not all plans are created equal. Choosing a health benefits plan that meets minimum value is essential for ALEs to not only stay compliant, but also to attract and retain employees looking for quality health coverage from their employer.
This article was originally published on September 18, 2014. It was last updated May 10, 2021.