minimum essential coverage

Minimum essential coverage is health insurance coverage that satisfies the Affordable Care Act‘s shared responsibility provision (individual mandate). Although there is no longer a federal penalty for not having minimum essential coverage, the individual mandate still exists and the concept of minimum essential coverage is still important.

There are several types of qualifying events that only trigger special enrollment periods if the person already had minimum essential coverage prior to the qualifying event. And some states have imposed their own individual mandates, with penalties for residents who don’t maintain minimum essential coverage.

But the concept of minimum essential coverage remains important for special enrollment period eligibility: If a person experiences a qualifying event that would trigger a special enrollment period (SEP) for ACA-compliant coverage but only if the person already had minimum essential coverage, the SEP would not be triggered if the person’s prior coverage was via a health care sharing ministry. The same is true for people whose previous coverage was a short-term plan, fixed-indemnity plan, discount plan, etc.

However, there is an exception for people who have pregnancy Medicaid, CHIP unborn child, or Medically Needy Medicaid. These are not considered minimum essential coverage, but they do meet the prior coverage requirements when a person is enrolling in a health plan during a special enrollment period that requires prior minimum essential coverage. And the termination of coverage under pregnancy Medicaid, CHIP unborn child, and Medically Needy Medicaid will trigger a loss-of-coverage special enrollment period (for the mother as well as the baby, in the case of CHIP unborn child coverage).

Some employer-sponsored plans provide minimum essential coverage but are actually skimpy plans

Large employers are subject to the ACA’s employer mandate, which requires them to offer coverage to their full-time employees. The penalty for non-compliance is still in effect – only the individual mandate penalty was repealed. But there are two different penalty types under the employer mandate:

• One is for employers that simply don’t offer coverage to at least 95 percent of their full-time employees. In 2020, this penalty is calculated as $2,570 per full-time employee (minus the first 30 employees), and it’s triggered if even one full-time employee qualifies for a premium subsidy in the exchange (for 2021, HHS has proposed a penalty amount of $2,700).
• The other is for employers that do offer coverage, but it’s either unaffordable or does not provide minimum value. Unaffordable, in 2020, is defined as the employee’s share of the premium (for self-only coverage on the least-expensive plan the employer offers) being more than 9.78 percent of the employee’s household income (this will increase to 9.83 percent in 2021). Minimum value, as noted above, is defined as covering at least 60 percent of costs for a standard population and providing “substantial coverage” for inpatient and physician care. The penalty, in this case (in 2020), is the lesser of $3,860 per full-time employee receiving a subsidy in the exchange, OR $2,570 per full-time employee, minus the first 30 employees (for 2021, HHS has proposed adjusting these amounts to $4,060 and $2,700, respectively).

Depending on how many employees a company has, and how many of them end up seeking coverage in the exchange, the penalty can end up being significantly smaller if the employer offers coverage that doesn’t provide minimum value and/or that isn’t affordable for the employees (as opposed to not offering coverage at all).

Employer-sponsored coverage is, by default, considered minimum essential coverage. And small group health plans effective in 2014 or later are fully compliant with the ACA. But the waters can be murkier for large group plans. Most of them are robust, offering solid coverage that often exceeds the level of coverage people tend to purchase in the individual market.

But some large employers opt for skimpy plans that do not provide minimum value, knowing that they can dodge the (potentially larger) penalty they’d incur if they didn’t offer coverage at all. Employees who are offered these plans don’t always realize that the coverage is skimpy, and may not realize they’re eligible for a premium subsidy in the exchange (and if an employer’s coverage drops below the minimum value and/or affordability requirements mid-year, covered employees are eligible for a special enrollment period during which they can enroll in a plan through the exchange, with subsidies if they’re eligible based on income).