Eligible Employer-Sponsored Plans
If an applicable large employer decides to offer coverage that’s deemed an eligible employer-sponsored plan, the health plan it chooses to offer must meet specific requirements, called Minimum Essential Coverage (MEC). The plan must be offered to substantially all (95%)* of full-time employees (not including part-time employees) and their dependents and must be considered “affordable” and of “minimum value.” Dependents include the employee’s children but not a spouse.
- Minimum Value = A health plan meets this standard if it’s designed to pay at least 60% of the total cost of medical services for a standard population.
- “Affordable” means that full-time employees cannot contribute more than 9.5%** of their household income to the premium. Three safe harbors are available:
- W-2: Employee contributions are less than 9.5% of wages reported in Box 1 of employee’s W-2 (reduced by 401k and cafeteria plan contributions)
- Rate of Pay: Employee monthly contribution must be less than 9.5% of employee’s monthly wages (hourly rate x 130 hours for hourly employees; monthly salary for salaried employees)
- Federal Poverty Level (FPL): Employee’s contribution does not exceed 9.5% of the FPL for a single individual
For more information, view the Affordability section in the IRS notice.
Determining Minimum Value and Affordability
The proposed ACA regulation describes how minimum value and affordability are determined for employer-sponsored plans, including the treatment of health savings account (HSA) and health reimbursement arrangement (HRA) contributions, as well as incentives through a wellness program.
- Wellness incentives: Because certain individuals won’t be able to participate in wellness programs, the proposed regulation does not consider reduced cost-sharing in wellness programs as counting toward minimum value, with one exception: Minimum value may be calculated for a nondiscriminatory wellness program relating to tobacco use.
- Employer HRA/HSA Contributions:
- HRA: HRAs that are integrated with an employer-sponsored plan for the current plan year are included in minimum value calculations if HRA funds are used in cost-sharing for covered medical expenses. If used to pay premiums, HRA amounts are included in affordability calculations and are excluded from minimum value calculations.†
- HSA: Amounts contributed by an employer to an HSA that’s connected to an eligible employer-sponsored plan are included in minimum value calculations.†
*This may allow the employer to avoid the penalty for not offering insurance [4980H(a)], but the employer penalty for not meeting minimum value and affordability requirements [4980H(b)] may still apply.
**May be adjusted for inflation beginning January 1, 2015.
†Changes to how these contributions determine minimum value and affordability under the employer mandate provision are on the horizon. Please see the January 12, 2015 Latest Updates posting for more information.