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 simply 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 have minimum essential coverage in place, you're not subject to the ACA's individual mandate penalty (even if you don't have minimum essential coverage, you won't be subject to the penalty if you qualify for an exemption, but that's not the same as having minimum essential coverage).

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 have one of the following types of insurance, you're considered covered and won't be subject to a tax penalty for being uninsured:

  • 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.

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.
  • AmeriCorps coverage (the program is hoping to eventually upgrade its coverage so that it could be considered minimum essential coverage)

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. 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 9.56 percent of household income in 2018, 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.

Sources:

Centers for Medicare and Medicaid Servies. Center for Consumer Information and Insurance Oversight. Minimum Essential Coverage Applicants Receiving Approval, October 12, 2017.

Centers for Medicare and Medicaid Services. Center for Consumer Information and Insurance Oversight. Minimum Essential Coverage Categories

HealthCare.gov. Read the Affordable Care Act (Full Text of the Affordable Care Act and Reconciliation Act).

Internal Revenue Service. Individual Shared Responsibility Provision—Minimum Essential Coverage.

Internal Revenue Service. Revenue Procedure 2017-36.

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