What Is Minimum Essential Coverage, and Why Does It Matter?

Minimum Essential Coverage: ACA Terminology That's Often Confusing

What does it mean to have minimum essential coverage?
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You may have heard the term minimum essential coverage, and you may know that it stems from the Affordable Care Act (ACA). But if you're like most people, you might be wondering how it differs from other common terms, like "ACA-compliant coverage" and "minimum value." So let's dig into what it means to have minimum essential coverage, and why it matters.

What Does "Minimum Essential Coverage" Mean?

Minimum essential coverage is defined as coverage that is deemed acceptable for fulfilling the ACA's individual shared responsibility provision—aka, the individual mandate. In other words, as long as you had minimum essential coverage in place from 2014 through 2018, you weren't subject subject to the ACA's individual mandate penalty (even if you didn't have minimum essential coverage, you weren't subject to the penalty if you qualified for an exemption, but that's not the same as having minimum essential coverage).

There is still an individual mandate in 2019 and beyond, but there is no longer a penalty for non-compliance, unless you live in DC, New Jersey, or Massachusetts (or Vermont, starting in 2020). However, the concept of minimum essential coverage is still important, as there are several circumstances in which a person must have had minimum essential coverage in place prior to a qualifying event, in order to have a special enrollment period triggered by the qualifying event.

It's important to understand that coverage does not necessarily have to be ACA-compliant in order to be considered minimum essential coverage.

What Counts as Minimum Essential Coverage?

There are a variety of plans that count as minimum essential coverage, and thus satisfy the ACA's individual mandate. If you had one of the following types of insurance from 2014 through 2018, you were considered covered and not subject to a tax penalty for being uninsured. And if you have one of them prior to one of the qualifying events that require prior coverage, you'll be eligible for a special enrollment period:

  • Coverage provided by an employer, including COBRA coverage and retiree health plans
  • Coverage you've obtained through the ACA exchange in your state
  • Coverage under an ACA Basic Health Program (only Minnesota and New York have such plans)
  • ACA-compliant coverage that you've obtained outside the exchange (directly from the insurer, or via an agent or broker)
  • Grandmothered health plans (plans took effect after the ACA was signed into law in March 2010, but before the bulk of the ACA's provisions took effect in 2014). These plans are not fully compliant with the ACA, but they've been allowed to remain in place in many states.
  • Grandfathered health plans (plans were already in effect when the ACA was signed into law in March 2010 and have not been significantly changed since then). These plans are not fully compliant with the ACA, but they're allowed to remain in place indefinitely, in every state.
  • Student health insurance that has been approved as minimum essential coverage
  • Medicare Part A or Medicare Advantage (you can also have Medicare Part B, Medicare Part D, or a Medigap plan, but those aren't the parts that are considered minimum essential coverage)

Some types of minimum essential coverage are compliant with the ACA, including employer-sponsored plans (although the ACA rules are different for large and small group plans), and individual market plans that took effect in January 2014 or later.

But other types of minimum essential coverage are not compliant with the ACA, or were not heavily regulated by the ACA. This includes grandmothered and grandfathered plans, high-risk pools, and Medicare and Medicaid (there are some ACA provisions that apply to some of these types of coverage, but not to the degree that individual and small group plans are regulated).

So the fact that your plan doesn't meet the guidelines for ACA compliance, or pre-dates that ACA, does not necessarily mean that it's not minimum essential coverage. If in doubt, check with your plan administrator to find out for sure.

What Does Not Count as Minimum Essential Coverage?

In general, coverage that isn't comprehensive is not considered minimum essential coverage. So plans that are designed to supplement other coverage, or to provide only limited benefits, are not considered minimum essential coverage. If you rely on one of these plans as your sole coverage, you'll be subject to the ACA's individual mandate penalty unless you're otherwise exempt.

Examples of plans that aren't minimum essential coverage include:

  • Anything that's considered an "excepted benefit" under the ACA, which means it's not regulated by the healthcare reform law. This includes stand-alone dental and vision coverage, fixed-indemnity plans, accident supplements, critical illness plans, workers' comp coverage, etc. In general, excepted benefits were never designed to serve as a person's sole source of coverage—they're supposed to supplement a "real" health insurance plan.
  • Short-term health insurance plans, including the short-term coverage that's offered to recently returned Peace Corps Volunteers.
  • Limited benefit Medicaid plans (coverage is limited to only family planning, or only pregnancy-related care, or only emergency care, etc.). You can select your state on this page and it will show you which Medicaid coverage counts as minimum essential coverage, and which does not. Again, as noted above, HHS has proposed allowing these plans to count as "prior coverage" in situations where a person experiences a qualifying event that requires prior coverage in order to trigger a special enrollment period.

Does Minimum Value Mean the Same Thing as Minimum Essential Coverage?

Minimum value and minimum essential coverage are both terms that were introduced with the ACA. And although they sound similar, they have different meanings.

As described above, minimum essential coverage is coverage that fulfills the ACA's individual mandate, and coverage that fulfills prior coverage requirements when a qualifying event requires prior coverage in order to trigger a special enrollment period. Minimum value, however, has to do with the law's employer mandate.

Under the ACA, employers with 50 or more full-time equivalent employees are required to offer health insurance to their full-time (30+ hours per week) employees. To comply with the employer mandate and avoid potential tax penalties, there are two basic rules that apply in terms of the coverage itself:

  • The premiums have to be affordable (which means it costs the employee no more than 9.86 percent of household income in 2019, for just the employee's coverage).
  • The coverage has to provide minimum value, which means that it will cover at least 60 percent of medical costs for an average population, and provide "substantial" coverage for inpatient and physician services.

Employers typically offer plans that provide minimum value, both because employer-sponsored plans have tended to be fairly robust, and because employers want to avoid the employer mandate penalty. Employer-sponsored coverage is also considered minimum essential coverage, but it's clear that the two terms have different meanings.

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