What Does It Mean When Health Insurance Provides Minimum Value?

Learn what determines the quality of employer-sponsored insurance

Minimum value is a health insurance term that came into being with the Affordable Care Act, and is used to measure whether an employer-sponsored plan is providing comprehensive health coverage. The details are codified into law in Section 26 U.S. Code 36B, which lays out the parameters for premium tax credit (premium subsidy) eligibility, along with additional IRS regulations that were published in 2014.

Minimum value is a term that refers to employer-sponsored health insurance, and premium tax credits are used to offset the cost of individually-purchased (also called non-employer-sponsored) health coverage. But a person who is eligible for affordable, minimum value employer-sponsored health insurance is not eligible for premium tax credits in the individual market, which is how the two concepts are linked together.

First, it's helpful to clear up some often-confused ACA terminology: minimum value, minimum essential coverage, and essential health benefits are three different concepts. These three terms cannot be used interchangeably—they all have specific definitions and functions under the ACA.

Minimum Essential Coverage vs. Essential Health Benefits

Minimum essential coverage refers to the coverage that a person needed to have from 2014 through 2018 in order to avoid the ACA's individual mandate penalty (Washington, D.C., Massachusetts, and New Jersey still have individual mandates and associated penalties, and Vermont will join them in 2020, but the penalty has been reduced to $0 in most states as of 2019).

Minimum essential coverage does not necessarily have to be ACA-compliant. For example, grandmothered and grandfathered health plans do not have to be fully compliant with the ACA, but they are considered minimum essential coverage.

Essential health benefits, on the other hand, are a set of 10 basic benefits that all individual and small group plans must cover if they have effective dates of January 2014 or later (in most states, "small group" means fewer than 50 employees, but in California, Colorado, New York, and Vermont, it means fewer than 100 employees).

Large group plans (which means 50 or more employees in most states or 100 or more employees in California, Colorado, New York, and Vermont) do not have to provide coverage for essential health benefits, because there are different rules for complying with the ACA depending on the size of the business. But if a large group plan (with an effective date of January 2014 or later) does cover an essential health benefit, there can't be any lifetime or annual cap on the dollar amount that the plan will pay for that benefit.

All employer-sponsored plans are considered minimum essential coverage. Most employer-sponsored plans provide minimum value and cover most of the essential health benefits.

It's possible, however, to have an employer-sponsored plan that is considered minimum essential coverage but that doesn't provide minimum value and/or doesn't cover some of the essential health benefits.

Minimum Value

For an employer-sponsored health plan to provide minimum value, it has to pay for at least 60 percent of total covered costs under the plan, and it has to provide "substantial coverage" for inpatient care and physician services.

ACA Terms

Under the terms of the ACA—under Section 36B(c)(2)(C)(ii)—a plan would provide minimum value as long as it paid for at least 60 percent of total covered costs with no other requirements. However, there were concerns that some large employers were providing "skinny" plans that didn't cover much but that would still fit the definition of providing minimum value.

Therefore, in November 2014, the IRS published Notice 2014-69, which added the requirement that an employer-sponsored plan must include coverage for physician services and inpatient care in order to provide minimum value.

Small Group Market

All health plans (with effective dates of January 2014 or later) that are sold in the small group market are providing minimum value since they have to include essential health benefits (inpatient and outpatient care are both considered essential health benefits) and since small group plans have actuarial values of at least roughly 60 percent.

Large Group Market

Although, in the large group market, employers can use a minimum value calculator developed by HHS, in order to ensure that the coverage they're offering is actually providing minimum value.

Penalties

Why does all of this matter? It matters to large employers because, in order to avoid the ACA's employer mandate penalty, they must offer coverage that is affordable and that provides minimum value. It also matters to individuals—if they have access to an employer-sponsored plan that's affordable and that provides minimum value, they're not eligible for premium subsidies in the health insurance exchange (understanding the family glitch is important context for how the affordability determination is made).

For large employers, there are two different employer mandate penalties. The first one applies to large employers that don't offer at least some sort of health coverage to at least 95 percent of their full-time employees, and at least one of those full-time employees ends up buying a plan in the exchange and qualifying for a premium subsidy.

The other penalty applies if the employer does offer coverage but it's not affordable and/or does not provide minimum value, and at least one full-time employee ends up getting a premium subsidy in the exchange. The employer mandate penalty amounts are indexed, so they've increased each year.

Minimum Value and Your Coverage

If you get your health coverage through your employer, chances are good that it's providing minimum value. And if your employer offers coverage but you've opted not to participate in the plan, chances are still good that the plan your employer offers does provide minimum value.

Small group plans (unless they're grandfathered or grandmothered, which is becoming increasingly rare) all provide minimum value due to the way they have to be designed to comply with the Affordable Care Act.

Large employers tend to want to avoid the employer mandate penalty, and they typically offer coverage that is fairly robust in an effort to create a competitive benefits package.

You can check with your employer to determine whether the health plan they're offering you is providing minimum value. If it turns out that it isn't, you have the option to decline it and apply for coverage in the health insurance exchange in your state, and you can get premium subsidies (and cost-sharing subsidies) if your income makes you eligible for them.

To clarify, you can decline your employer's plan and enroll in a plan through the exchange regardless of whether your employer's plan provides minimum value. But if your employer's plan does provide minimum value and is considered affordable, you're not going to be eligible for subsidies in the exchange, regardless of your income).

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