What is “Minimum Value” Coverage?
An employer’s health care plan provides “minimum value” for purposes of the employer shared responsibility rules if the plan pays at least 60 percent of the total allowed cost of health care benefits provided to eligible plan participants.
Regulations issued by the Department of Health and Human Services (DHHS) define a plan’s minimum value percentage as: (1) the plan’s anticipated covered medical spending for “essential health benefits” for a standard population of participants, that is (2) determined in accordance with the plan’s cost-sharing structure, and (3) divided by the total anticipated costs of the essential health benefits provided to that standard population group.
When determining whether a plan provides minimum value, an employer may take into account any amounts it contributes to a participant’s health savings account (HSA). For example, if an employer’s HSA-eligible health plan has a $1,500 deductible, and the employer makes an annual $500 contribution to its employees’ HSAs, the plan will be treated as having a $1,000 deductible for purposes of determining minimum value. In addition, health reimbursement account (HRA) amounts may be taken into account when determining minimum value when they are first made available for the participant’s use, provided that they are used only for the participant’s cost-sharing, and not to pay insurance premiums. Finally, although wellness program incentives generally are not taken into account when determining whether a plan provides minimum value, costs for programs designed to reduce or prevent tobacco use may be included in the calculation.
Recognizing that it may be difficult for employers to calculate a health plan’s minimum value percentage, the DHHS regulations include several alternative approaches for determining whether the plan provides minimum value:
Minimum Value Calculator. The DHHS and the Department of Treasury have developed a “minimum value” calculator that allows an employer to enter certain information about the benefits offered by the plan, its covered services, and cost-sharing requirements. The calculator will use this information to calculate the plan’s minimum value percentage.
Design-Based Safe Harbors. The DHHS and the Department of Treasury are also developing designed-based safe harbors intended to give employers a simple method for determining whether a plan provides minimum value, but without the need to perform calculations. If the features of the employer’s plan (such as deductibles, out-of-pocket maximums, cost-sharing limits, etc.) mirror those of one of the design-based safe harbors, then the employer’s plan will be deemed to provide “minimum value.”
Use of a Certified Actuary. If a plan’s features don’t lend themselves to use of either the minimum value calculator or a design-based safe harbor, then the employer may use a certified actuary to determine the plan’s minimum value percentage.
Special Rule for Small Group Plans. If a small group plan satisfies the requirements for any of the levels of “metal” coverage provided for under the ACA (i.e., a “bronze,” “silver,” “gold,” or “platinum” plan), then it will be treated as providing “minimum value.”
Is the Coverage “Affordable”?
Under Section 36B of the Internal Revenue Code, an employer’s health plan is “affordable” if a full-time employee’s required contribution for the lowest-cost, self-only coverage (“qualifying coverage”) offered by the plan does not exceed 9.5 percent of the employee’s total household income for the taxable year. In most cases, however, an employer won’t know the employee’s household income for the year. To address this problem, the employer shared responsibility rules include three safe harbors employers can apply to determine whether the coverage is “affordable”: the “Form W-2” safe harbor; the “rate of pay” safe harbor; and the “Federal poverty line” safe harbor.
Using the Safe Harbors
Employers may elect to use one or more of the affordability safe harbors, and may use different safe harbors for different categories of employees. The categories must, however, be reasonable, and the employer must apply the safe harbor used with each particular category on a uniform and consistent basis with respect to all employees included in such category. Reasonable categories include specified job categories; nature of compensation (for instance, salaried vs. hourly employees); geographic location; and similar bona fide business criteria. Simply listing employees by name is not considered a reasonable category, however.
(1) The Form W-2 Safe Harbor
Under the “Form W-2” safe harbor, a plan is deemed to provide affordable coverage if an employee’s required contribution for qualifying coverage doesn’t exceed 9.5 percent of the employee’s Box 1, Form W-2 wages from the employer (and any wages paid to the employee by other members of the employer’s controlled group or affiliated service group) for the calendar year. Pre-tax reductions to an employee’s compensation (such as 401(k) contributions or health plan contributions) are not added back to the employee’s Form W-2 wages when determining whether the safe harbor is satisfied.
An employer's use of the Form W-2 safe harbor is contingent on the employer meeting the requirements set forth below. These requirements may make using this safe harbor unpalatable to some employers.
(2) The Rate of Pay Safe Harbor
The “rate of pay” safe harbor generally permits a plan to charge full-time employees no more than 9.5 percent of their rate of pay for qualifying coverage. The application of this safe harbor varies for hourly and salaried employees.
To simplify use of the rate of pay safe harbor, employers may elect to use the State minimum wage as a proxy for the employee’s rate of pay. For example, for Wisconsin hourly employees, an employer could use Wisconsin’s current minimum wage of $7.25 rather than looking at each employee’s hourly rate or salary to determine whether the safe harbor is met. If an employee’s monthly contribution for qualifying coverage is less than $89.54 (9.5 percent of $7.25 x 130 hours), the employer will satisfy the rate of pay safe harbor. A similar proxy could apply to salaried exempt employees, based on the minimum weekly salary required by the Fair Labor Standards Act.
(3) The Federal Poverty Line Safe Harbor
The Federal poverty line safe harbor will be satisfied if an employee’s required contribution for qualifying coverage for a particular month is not more than 9.5 percent of the most recently published Federal poverty line for a single individual for the applicable year, divided by 12. The Federal poverty line used for applying the safe harbor depends on the employee’s State of residence. There are three different Federal poverty lines: one for the 48 continental States; one for Alaska; and one for Hawaii. Because of their higher costs of living, the Federal poverty lines for Alaska and Hawaii are somewhat higher than that applied for the continental States.
For multi-State employers, the Federal poverty line safe harbor may be the easiest safe harbor to apply. For example, for an employer with operations in Illinois, Indiana, and New York, the applicable Federal poverty line for a single individual is $11,670 for 2014 (the limit for the 48 continental States). Thus, the safe harbor contribution amount for all of the employer’s employees, across the three States, is $92.39/month ($11,670 x 9.5 percent /12). So long as a full-time employee’s required monthly contribution for qualifying coverage doesn’t exceed that amount, then the employer’s coverage will be deemed affordable.
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Katherine L. Aizawa
San Francisco, California
Casey K. Fleming
Belinda S. Morgan
Leigh C. Riley
Erik D. Vogt