“Minimum value” means that the coverage provides at least 60% of the total allowable cost for the benefits provided under the plan. This calculation would look at deductibles, out-of-pocket maximums, co-pays, etc. for the different types of benefits available under the plan to see if the employee is ultimately bearing more than 40% of the total cost. Note that this might include separate calculation of costs for physician and practitioner care, hospital/ER services, pharmacy benefits, and lab/X-ray services. IRS and HHS have announced they will deploy web-based “calculators” to make the minimum value determination. These will require the employer to input information about costs and shared payments that should be provided by the carrier or plan sponsor.
What are the penalties?
The answer to this question depends upon your specific facts, but here is an overview of the possible penalties. The employer must pay a tax for any month in which the employer does not offer minimal essential coverage to substantially all (95%) of its employees and their dependents (children 26 or under but not spouses) and a full-time employee receives a tax credit or cost-sharing reduction for obtaining coverage through an Exchange. If no coverage is provided and merely one employee receives a subsidy or enrolls in an Exchange, the monthly penalty will be $2,000 divided by 12 times the number of full-time (i.e., 30+ hours per week) employees, not counting the first 30 such employees. For some employers, especially those close to the 50 FTE eligibility threshold, it might be cheaper to pay the penalty than provide coverage.
If an employer offers coverage, but it is deemed not to be minimal essential coverage (either because of affordability or minimum value), and any full-time employee receives a subsidy for coverage through an Exchange, then the employer may face a penalty of $3,000 divided by 12 times the number of full-time employees who obtained a subsidy. This penalty cannot be greater, however, than the penalty imposed for not offering coverage at all. In any calendar month, the employer could face liability for either penalty, but cannot be liable for both penalties for a single month.
Large employers can choose not to provide coverage and pay a penalty. It is vital that employers make the eligibility determination quickly and then work with an insurance broker to obtain realistic pricing if coverage is mandated and the employer wants to provide it. This creates the “pay or play” decision process. In other words, prudent employers will compare the cost of providing coverage (play) against the cost of not providing coverage and paying the statutory penalty (pay).