Health Reform Questions – What is “minimum essential coverage”?

By Larry Grudzien
Attorney-At-Law

Question: In 2015, my client is a large employer and has to comply with the employer mandate.  What coverage does it have to offer to its full-time employees to avoid the $2,000 penalty under Code Section 4980H(a).

Answer: Beginning in 2015, a large employer will pay a penalty tax  for any month that-
 
(1) the employer fails to offer full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage” under an “eligible employer-sponsored plan” for that month; and
 
(2) at least one full-time employee has been certified to the employer as having enrolled for that month in a QHP for which health coverage assistance is allowed or paid.
 
The $2,000  penalty applies only if the employer fails to offer adequate coverage and at least one employee enrolls for subsidized exchange coverage. If it offers “minimum essential coverage” to full-time employees and dependents, a large employer will not be liable for this penalty. Most employer-provided group health coverage will meet the very broad definition of minimum essential coverage.  
 
The definition includes any coverage under an “eligible employer-sponsored plan”-a term that means a group health plan or group health insurance coverage offered by an employer to an employee that is (1) a governmental plan, or (2) any other plan or coverage offered in a state’s small or large group market. IRS regulations clarify that self-insured employer coverage qualifies as an eligible employer-sponsored plan.  
 
Minimum essential coverage does not include certain excepted benefits. HRA coverage that does not consist solely of excepted benefits generally will be considered minimum essential coverage.  
 
Benefits under an EAP-even if the EAP is considered a group health plan-will be considered “excepted benefits” if the EAP does not provide “significant benefits in the nature of medical care or treatment.”
 
It is important not confuse  the term “minimum essential coverage” with minimum value. “Minimum value” refers to a requirement that an eligible employer-sponsored plan cover at least 60% of the allowed cost under the plan and is important in determining whether the penalty under Code Section 4980H(b) may apply.
 
Minimum essential coverage is the term used to describe both the coverage that an individual must have to avoid the individual shared responsibility tax  and the coverage that large employer member must offer to full-time employees and dependents to avoid the $2,000 penalty under Code Section 4980H(a).
 
Essential health benefits, on the other hand, is the term used to describe the benefits that qualified health plans are required to cover. Pending further clarification,  it is important to note that coverage under an employer-sponsored health plan can be “minimum essential coverage” even if it does not cover all essential health benefits.
 
Minimum essential coverage may not necessarily be affordable or provide minimum value. An employee who is eligible for minimum essential coverage that is not affordable or does not provide minimum value may still qualify to purchase subsidized  Marketplace coverage. If the employee purchases subsidized Marketplace coverage, the employer may be liable for $3,000  penalty under Code Section 4980H(b).
  
For More Information:
If you need more information regarding the above, please do not hesitate to call me at (708) 717-9638 or e-mail me at  larry@larrygrudzien.com.