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

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."

This article will explain what it means to have minimum essential coverage, why it matters, and how it differs from other similar terminology.

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. For example, people with healthcare sharing ministry coverage were exempt from the individual mandate penalty, but healthcare sharing ministry plans are not minimum essential coverage.

There is still an individual mandate, but there is no longer a penalty for non-compliance, unless you live in the District of Columbia, New Jersey, Massachusetts, California, or Rhode Island. 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.

And 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 as of 2023, although Oregon is considering the creation of one, and Kentucky might also develop one.
• 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. Insurance companies are not required to continue to renew grandmothered plans, and can opt to terminate them instead and provide insureds with an option to switch to ACA-compliant coverage.
• 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. Insurers have the option to discontinue them, however, so there is never any guarantee that these plans will continue to be available as time goes on.
• Student health insurance that is ACA-compliant, or self-insured student health coverage that has been approved as minimum essential coverage. All student health plans are required to be ACA-compliant if they're provided to a school's students by an insurance company. If the school self-insures its student health plan, the coverage does not have to be ACA-compliant, but these schools can opt to make their plans ACA-compliant and get it certified 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).
• Children's Health Insurance Program (CHIP) coverage.
• Most Medicaid coverage. Some types of Medicaid coverage are not technically considered minimum essential coverage, including Pregnancy Medicaid, Medically Needy Medicaid, and CHIP Unborn Child. But under new federal rules issued in 2019, these types of coverage do fulfill the prior coverage requirement in the case of a qualifying event that requires the person to have had coverage before the qualifying event in order to be eligible for a special enrollment period.
• TRICARE (military) coverage, Nonappropriated Fund Health Benefit Program coverage, and comprehensive Veterans Administration (VA) coverage.
• Refugee Medical Assistance.
• Most state high-risk pool coverage (in states that still operate high-risk pools).

Some types of minimum essential coverage are compliant with the ACA, including employer-sponsored plans effective since the start of 2014 (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 the 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 will not be eligible for a special enrollment period if you experience a qualifying event that requires prior coverage (most of them do). And you will likely be subject to the shared responsibility provision if you live in DC, Massachusetts, New Jersey, California, Vermont, or Rhode Island.

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. Even though short-term health plans can now last for up to three years (including renewals) in many states, the termination of a short-term plan does not trigger a loss-of-coverage special enrollment period for individual market coverage (although it does provide a special enrollment period that will allow a person to enroll in an employer's plan, if that's available to them). So a person losing short-term coverage would not be able to enroll in ACA-compliant individual/family coverage until the next annual open enrollment period. (Note that Idaho has "enhanced" short-term plans that follow different rules. If a person's enhanced short-term plan ends and they've had coverage under it for at least 11 months, they have to be allowed to enroll in any of the ACA-compliant plans offered by the same insurer that provided the enhanced short-term plan.)
• Some limited-benefit Medicaid plans (coverage is limited to only family planning, or only pregnancy-related care, or only emergency care, etc.). As noted above, HHS has changed the rules to allow 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. But the distinction is still important, as a person eligible for only non-MEC Medicaid coverage is also eligible for premium subsidies to offset the cost of a private plan purchased in the exchange (if their income makes them eligible), whereas a person eligible for minimum essential coverage Medicaid would not be eligible for any subsidies in the exchange.
• AmeriCorps coverage (but AmeriCorps members do qualify for a special enrollment period—at both the start and end of their service—during which they can enroll in an ACA-compliant plan in their state's exchange).

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, and with eligibility for premium subsidies in the exchange when a person has access to a plan offered by an employer of any size.

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 9.12% of household income in 2023, for just the employee's coverage.
• The coverage has to provide minimum value. This means that it will cover at least 60% of medical costs for an average population, and provide "substantial" coverage for inpatient and physician services.

Although small employers (fewer than 50 full-time equivalent employees) are not required to offer coverage, many of them do. And regardless of the size of the employer, if an employee is offered coverage that is considered affordable and that provides minimum value, the employee is not eligible for premium subsidies to offset the cost of an individual market plan in the exchange.

The employee's family members may or may not be eligible for subsidies as of 2023. In prior years, they were always ineligible for subsidies if they were eligible for the employer's plan and the employer's plan was considered affordable for the employee alone. But those rules were changed as of 2023, so it now depends on the household's specific circumstances and how the cost of exchange/marketplace coverage compares with the household's total income.

Large 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 always considered minimum essential coverage, but it's clear that the two terms have different meanings.

Minimum Essential Coverage Versus Essential Health Benefits

"Essential health benefits" is another term that was created by the ACA and that's often conflated with the concept of minimum essential coverage (and minimum value). Essential health benefits refer to a set of ten coverage categories that must be included on all individual and small group health plans with effective dates of January 2014 or later.

All individual and small group health plans with effective dates of 2014 or later are considered minimum essential coverage. And the small group plans are also compliant with the minimum value requirements. But as noted above, the scope of plans that are considered minimum essential coverage and that provide minimum value goes well beyond ACA-compliant individual and small group plans.

So the plans that are required to incorporate coverage for essential health benefits are also considered minimum essential coverage (and the small group plans also provide minimum value).

But there are plenty of plans that are considered minimum essential coverage that do not have to cover the essential health benefits. And large group health plans are not required to cover the essential health benefits (although most of them do), but are required to comply with the minimum value requirements.

Summary

Minimum essential coverage is a definition created by the ACA. It refers to health coverage that fulfills the ACA's individual mandate. And minimum essential coverage is required to be in place prior to most qualifying life events in order to allow the person access to a special enrollment period to sign up for ACA-compliant coverage.

But minimum essential coverage does not have to be ACA-compliant. And it's not the same thing as minimum value or essential health benefits. Although those concepts were also created by the ACA, they refer to different things.

A Word From Verywell

If you have health insurance in the United States, chances are good that it counts as minimum essential coverage. There's no longer an individual mandate penalty in most states, so you probably won't be directly penalized for not having minimum essential coverage. But you'll need it in order to be able to use a special enrollment period to sign up for new coverage (for example, if you move to a new area, you only get a special enrollment period if you already had minimum essential coverage in your prior location).

Regardless of the terminology, the important thing is to make sure that you and your loved ones are covered under high-quality health insurance. All high-quality plans count as minimum essential coverage, but not all minimum essential coverage is high quality. Most employer-sponsored health plans offer solid benefits, but some do not (they're still considered minimum essential coverage, so you need to read the details of the plan to understand what you're getting).

And there are numerous websites selling coverage that isn't minimum essential coverage at all. So when you're shopping for health coverage, be sure to ask lots of questions and read the fine print to make sure you understand what you're buying.