In this video, we explain the difference between Minimum Essential Coverage and Minimum Value and discuss how these concepts apply to the employer and individual mandates.
The concepts of Minimum Essential Coverage, Minimum Value, and Affordability are found in section II of the Employer Mandate Final Rule:
II. Minimum Essential Coverage, Minimum Value and Affordability (Sections 5000A & 36B)
MEC, MV and affordability are defined under Code provisions other than section 4980H, but all relate to the determination of liability under section 4980H, and accordingly are summarized briefly in this section of the preamble (but are more fully described in other cited guidance). Specifically, for purposes of section 4980H, an employer is not treated as having offered coverage to an employee unless the coverage is MEC. Moreover, under section 36B, an individual who is offered employer coverage but instead purchases coverage under a qualified health plan within the meaning of section 1301(a) of the Affordable Care Act on an Exchange may be eligible for a premium tax credit if the household income of the individual’s family falls within certain thresholds and the coverage offered by the employer either does not provide MV or is not affordable. While an individual may purchase coverage under a qualified health plan on an Exchange without regard to whether the individual is eligible for a premium tax credit, an employer’s potential liability under section 4980H is affected by the individual’s purchase of coverage on an Exchange only if the individual receives a premium tax credit.
A. Minimum Essential Coverage (MEC)
MEC is defined in section 5000A(f) and the regulations under that section. Section 5000A(f)(1)(B) provides that MEC includes coverage under an eligible employer-sponsored plan. Under section 5000A(f)(2) and § 1.5000A-2(c)(1), an eligible employer-sponsored plan is, with respect to any employee, (1) group health insurance coverage offered by, or on behalf of, an employer to the employee that is either (a) a governmental plan within the meaning of section 2791(d)(8) of the Public Health Service Act (PHS Act) (42 U.S.C. 300gg-91(d)(8)), (b) any other plan or coverage offered in the small or large group market within a State, or (c) a grandfathered health plan, as defined in section 5000A(f)(1)(D), offered in a group market, or (2) a self-insured group health plan under which coverage is offered by, or on behalf of, an employer to the employee. Section 5000A(f)(3) and regulations thereunder provide that MEC does not include coverage consisting solely of excepted benefits described in section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the PHS Act or regulations issued under these provisions. See § 1.5000A-2(g).
B. Minimum Value (MV)
If the coverage offered by an employer fails to provide MV, an employee may be eligible to receive coverage in a qualified health plan supported by the premium tax credit. Under section 36B(c)(2)(C)(ii), a plan fails to provide MV if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of those costs.
Section 1302(d)(2)(C) of the Affordable Care Act provides that, in determining the percentage of the total allowed costs of benefits provided under a group health plan, the regulations promulgated by the Secretary of Health and Human Services (HHS) under section 1302(d)(2) of the Affordable Care Act apply. HHS published final regulations under section 1302(d)(2) of the Affordable Care Act on February 25, 2013 (78 FR 12834). On May 3, 2013, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-125398-12, 78 FR 25909) that adopts the HHS rules and provides additional guidance on MV. The HHS regulations at 45 CFR 156.20 define the percentage of the total allowed costs of benefits provided under a group health plan as (1) the anticipated covered medical spending for essential health benefits (EHB) coverage (as defined in 45 CFR 156.110(a)) paid by a health plan for a standard population, (2) computed in accordance with the plan’s cost sharing, and (3) divided by the total anticipated allowed charges for EHB coverage provided to the standard population. In addition, 45 CFR 156.145(c) provides that the standard population used to compute this percentage for MV (as developed by HHS for this purpose) reflects the population covered by typical self-insured group health plans. The HHS regulations describe several options for determining MV, including the MV Calculator (available at http://cciio.cms.gov/resources/regulations/index.html). Alternatively, a plan may determine MV through one of the safe harbors being established by HHS and the IRS. For plans with nonstandard features that are incompatible with the MV Calculator or a safe harbor, 45 CFR 156.145(a)(3) provides that the plan may determine MV through an actuarial certification from a member of the American Academy of Actuaries after the member performed an analysis in accordance with generally accepted actuarial principles and methodologies. Under proposed § 1.36B-6(f)(4), an actuary performing an actuarial certification for a plan with nonstandard features must use the MV Calculator to determine the plan’s MV for plan coverage the MV calculator measures. The actuary adds to that MV percentage the result of the actuary’s analysis of nonstandard features. Finally, 45 CFR 156.145(a)(4) provides that a plan in the small group market satisfies MV if it meets the requirements for any of the levels of metal coverage defined at 45 CFR 156.140(b) (bronze, silver, gold, or platinum).
Under section 36B(c)(2)(B) and (C), an employee is not eligible for subsidized coverage for any month in which the employee is offered health coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) that provides MV and that is affordable to the employee. Coverage for an employee under an eligible employer-sponsored plan is affordable if the employee’s required contribution (within the meaning of section 5000A(e)(1)(B)) for self-only coverage does not exceed 9.5 percent of the taxpayer’s household income for the taxable year. See section 36B(c)(2)(C)(i) and § 1.36B-1(e).