The Patient Protection and Affordable Care Act (PPACA) uses terms that sound alike for three very different things. Here’s a closer look at these terms, and when they’re used.
Essential Health Benefits
Significantly affects individuals and small employers with a fully insured plan. Has a limited impact on self-funded and large insured plans.
Beginning in 2014, policies in the individual and small group markets generally* will be required to provide coverage for each of the 10 “essential health benefits” regardless whether the policy is purchased through or outside the Marketplace (which is also called the exchange). The essential health benefit categories are ambulatory/outpatient, emergency, hospitalization, maternity and newborn care, mental health and substance use, prescription drugs, rehabilitative and habilitative services and devices (for example, speech, physical and occupational therapy), laboratory services, preventive and wellness services and chronic disease management, and pediatric services, including pediatric dental and vision care.
Each state has its own “benchmark” essential health benefits package. The current benchmark plan will be in place for 2014 and 2015. In most states, insurers may provide different coverage than the benchmark plan within an essential health benefit category as long as the value of the coverage in the category is the same as the value of the coverage provided by the benchmark plan.
Self-funded plans (regardless of size), large group plans, and grandfathered plans (regardless of size) do not have to cover all 10 essential health benefits, but they may not put lifetime or annual dollar limits on an essential health benefit. Because of this limitation, these plans will need to choose a benchmark plan. Any state’s benchmark plan may be used; it is probably best to choose a benchmark that provides benefits similar to the plan’s.
Minimum Essential Coverage
Affects most individuals beginning in 2014. Generally affects all employers with 100 or more employees beginning in 2015+ and all employers with 50 or more employees beginning in 2016 (regardless whether the employer’s plan is self-funded or fully insured).
Beginning in 2014, most Americans will be required to have “minimum essential coverage” or pay a penalty with their tax return. (In 2014, the penalty will be the greater of 1% of income above the tax filing threshold# or $95. In 2015, the penalty will be the greater of 2% of income above the tax filing threshold and $295.) A person will have minimum essential coverage if he or she is covered under an eligible employer-sponsored plan, an individual policy (through or outside the Marketplace), or most government plans (Medicare, Medicaid, CHIP, TRICARE, VA, etc.).
Beginning in 2015, employers with 100 or more full-time or full-time equivalent employees will be required to offer minimum essential coverage to nearly all of their employees who work 30 or more hours a week, or pay a penalty. (If minimum essential coverage is not offered to at least 70% of full-time employees, a penalty of $2,000 per year per full-time employee, excluding 80 full-time employees, will apply.) Beginning in 2016, employers with 50 or more full-time or full-time equivalent employees will be required to offer minimum essential coverage to at least 95% of their full-time employees and their dependents or pay a penalty.
A clear definition of “minimum essential coverage” for employer-provided benefits has not been provided yet, but it appears that fairly basic medical coverage, including a “skinny” or a “MEC” plan, will be enough. A plan does not need to include essential health benefits to be considered minimum essential coverage. Qualifying employer-sponsored coverage includes any plan offered in the small or large group market in a state, as well as self-funded plans, unless the plan only provides “excepted benefits.” Excepted benefits are those that provide very limited medical coverage, like hospital indemnity, long-term care and cancer plans, on-site medical clinics, disability income and accident plans, and dental- and vision-only coverage. A health reimbursement arrangement (HRA) is considered minimum essential coverage.
A person who is covered by a plan that provides minimum essential coverage is not eligible for a premium subsidy from the Marketplace.
Minimum Value Coverage
Affects individuals who may be eligible for premium tax credits/subsidies beginning in 2014. Generally affects all employers with 100 or more employees beginning in 2015+ and employers with 50 or more employees in 2016 (regardless whether the employer’s plan is self-funded or fully insured).
Beginning in 2016, employers with 100 or more full-time or full-time equivalent employees that offer coverage that is less than “minimum value” or that is not “affordable” will have to pay a penalty. Beginning in 2015, this requirement applies to employers with 50 or more full-time or full-time equivalent employees. (The penalty for not providing minimum value, affordable coverage is $3,000 for each full-time employee who obtains coverage through a public Marketplace and receives a premium tax credit/subsidy. Individuals will not be eligible for a premium subsidy if they are eligible for affordable, minimum value coverage, even if they do not elect that coverage. Affordability is based on the cost of employee-only coverage, which means that the employee and any eligible dependent spouse and children are not eligible for a premium subsidy if the cost of employee-only coverage is affordable regardless how much dependent coverage costs.)
Minimum value coverage is coverage with an actuarial value of at least 60% – this means that on average the plan is designed to pay at least 60% of covered charges. (The employee would be responsible for the other 40% through the deductible, copays and coinsurance.) In the self-funded and large markets, employers will be able to use a calculator provided by the government, or a safe harbor plan design, to make sure their plan meets the 60% standard. The calculator may be found here (under the “Plan Management” section): Regulations and Guidance | cciio.cms.gov. According to HHS, 97% of the employer-sponsored plans they surveyed already meet the 60% requirement.
In the individual and small group markets, a “bronze” policy will have an actuarial value of 60%.
In a nutshell, then:
- Essential health benefits are the kinds of care insured small group and individual policies must cover unless they are “grandmothered.” ^
- Minimum essential coverage is what individuals must have and large employers will need to offer if they don’t want to pay tax penalties.
- Minimum value coverage is what large employers will need to offer to avoid a different tax penalty.
* For purposes of the essential health benefits requirement, a small group generally is a group with 50 or fewer full-time or full-time equivalent employees for 2014 and 2015.
+ Employers with 50 – 99 full-time and full-time equivalent employees must meet certain requirements related to maintaining eligibility, contribution levels and benefits to be eligible for the delay of the requirement to offer minimum essential and minimum value coverage to 2016.
# For 2014 the federal income tax filing threshold for those under age 65 is $10,150 if filing as a single person and $20,300 if married and filing jointly.
^ The federal government is now permitting renewals of individual and small group policies that were in effect on October 1, 2013 even though the renewed policies do not have the 10 essential health benefits (or several other 2014 PPACA requirements) if this is acceptable to the state. About one-half of the state insurance departments are allowing these non-compliant “grandmothered” renewals. Carriers are not required to renew non-compliant policies even the state permits this. All new policies issued in 2014 or later must meet all of the PPACA requirements.
