By Danielle Capilla
Chief Com­pli­ance Offi­cer at Unit­ed Ben­e­fit Advisors

10QuestionsAn employ­er that offers min­i­mum essen­tial cov­er­age to sub­stan­tial­ly all of its full-time employ­ees may still owe penal­ties if the cov­er­age it offers is inad­e­quate because it is not “afford­able” or it does not pro­vide “min­i­mum val­ue.” It also may owe penal­ties on the employ­ees it does not offer cov­er­age to who receive a pre­mi­um subsidy.

Here we answer the top 10 ques­tions relat­ed to min­i­mum val­ue penal­ties based on the IRS’s final reg­u­la­tion. More on min­i­mum val­ue can be found in our blogs on ACA Penal­ties, Tax­es and Fees and on Min­i­mum Val­ue. Com­pre­hen­sive answers to 120 ques­tions relat­ed to the play-or-pay penal­ty and count­ing employ­ees under ACA can be found in our ACA Advi­sor on Play or Pay and Count­ing Employ­ees.

Q1: What is “min­i­mum val­ue” coverage?
A1: Cov­er­age is “min­i­mum val­ue” if the cov­er­age is expect­ed to pay at least 60 per­cent of cov­ered claims costs. It must pro­vide sub­stan­tial cov­er­age for inpa­tient hos­pi­tal and physi­cians’ services.

Ful­ly insured plans pro­vid­ed to small groups must pro­vide cov­er­age at bronze lev­el, or bet­ter. Bronze lev­el is an actu­ar­i­al val­ue of approx­i­mate­ly 60 per­cent, and those plans are auto­mat­i­cal­ly con­sid­ered to pro­vide min­i­mum value.

The gov­ern­ment has pro­vid­ed a cal­cu­la­tor and sev­er­al safe har­bor plan designs to assist large insured plans and self-fund­ed plans with their min­i­mum val­ue determinations.

Q2: May an employ­er use well­ness incen­tives when deter­min­ing min­i­mum value?
A2: The employ­er may use non-smok­ing incen­tives when deter­min­ing min­i­mum val­ue if non-smok­ing incen­tives are used to reduce cost-shar­ing (deductibles, coin­sur­ance, copays, or the out-of-pock­et max­i­mum). If non-smok­ing incen­tives are avail­able to reduce cost-shar­ing, essen­tial­ly the employ­er may assume that all employ­ees qual­i­fy for the non-smok­er incen­tive. All oth­er well­ness incen­tives must be disregarded.

Q3: May an employ­er use HRA con­tri­bu­tions when deter­min­ing min­i­mum value?
A3: When deter­min­ing min­i­mum val­ue, an employ­er may apply HRA con­tri­bu­tions for the cur­rent year if those con­tri­bu­tions may only be used by employ­ees for cost-shar­ing. (Cost-shar­ing gen­er­al­ly means deductibles, coin­sur­ance, or copays.)

Q4: May an employ­er use HSA con­tri­bu­tions when deter­min­ing min­i­mum value?
A4: When deter­min­ing whether cov­er­age is afford­able, an employ­er’s con­tri­bu­tions to an HSA may be con­sid­ered as a first-dol­lar benefit.

Q5: What is the penal­ty for not offer­ing afford­able, min­i­mum val­ue coverage?
A5: The penal­ty is $250 per month ($3,000 per year, indexed) for each full-time employ­ee who:

  • Is not offered cov­er­age that is both min­i­mum val­ue and afford­able cov­er­age, and
  • Pur­chas­es cov­er­age through a gov­ern­ment Mar­ket­place, and
  • Is eli­gi­ble for a pre­mi­um tax credit/subsidy (so his house­hold income must be below 400 per­cent of fed­er­al pover­ty level).

Exam­ple: Jones, Inc. has 55 full-time employ­ees and eight part-time employ­ees. Jones offers cov­er­age that is min­i­mum val­ue for all employ­ees, but which is not afford­able for 10 of the full-time employ­ees (nine of whom buy cov­er­age through the Mar­ket­place) and all of the part-time employ­ees (all eight buy through the Mar­ket­place). Sev­en of the nine full-time employ­ees and six of the eight part-time employ­ees who buy through the Mar­ket­place qual­i­fy for a pre­mi­um tax credit.

Jones owes a penal­ty on each full-time employ­ee who enrolls in a Mar­ket­place plan and receives a pre­mi­um tax cred­it, so Jones owes $21,000 ($250 per month for each of the sev­en full-time employ­ees who receive a pre­mi­um cred­it; the part-time employ­ees are not counted).

Note that the first 30 (or 80) employ­ees do count under this “inad­e­quate cov­er­age” penal­ty. Also, if the “no offer” penal­ty would be less expen­sive than the “inad­e­quate cov­er­age” penal­ty, the employ­er would pay the “no offer” penalty.

Q6: Does the employ­er owe a penal­ty if the employ­ee declines afford­able, min­i­mum val­ue cov­er­age offered by the employ­er and buys cov­er­age through the Mar­ket­place instead?
A6: No. The employ­er sim­ply has to offer afford­able, min­i­mum val­ue cov­er­age. (Specif­i­cal­ly, the least expen­sive plan that pro­vides min­i­mum val­ue cov­er­age must be afford­able based on the cost of self-only cov­er­age.) If the employ­ee choos­es to obtain cov­er­age through the Mar­ket­place, he or she can, but the employ­ee will not be eli­gi­ble for a pre­mi­um tax credit/subsidy and there­fore the employ­er will not owe a penalty.

Q7: Does the employ­er owe a penal­ty if the employ­er offers min­i­mum essen­tial cov­er­age that is not afford­able and min­i­mum val­ue cov­er­age to an employ­ee who would be eli­gi­ble for a pre­mi­um tax credit/subsidy, but the employ­ee choos­es to enroll in the employ­er’s plan?
A7: No. If the employ­ee choos­es to obtain cov­er­age through his or her employ­er instead of through the Mar­ket­place, the employ­ee can, but he or she will usu­al­ly not be eli­gi­ble for a pre­mi­um tax credit/subsidy and there­fore the employ­er will not owe a penalty.

Q8: Is it pos­si­ble for an employ­ee to qual­i­fy for a pre­mi­um tax credit/subsidy even though his or her employ­er offers afford­able coverage?
A8: Yes. If the cost of self-only cov­er­age through the Mar­ket­place is more than 9.5 per­cent (indexed to 9.56 per­cent in 2015, and 9.66 per­cent in 2016) of an employ­ee’s actu­al house­hold income, an employ­ee could be eli­gi­ble for the sub­sidy even though the cov­er­age offered by his or her employ­er is afford­able under one of the three safe har­bors. This will be a fair­ly unusu­al occur­rence, but could hap­pen because cer­tain deduc­tions are allowed when deter­min­ing house­hold income.

Q9: Must all plan options pro­vide afford­able, min­i­mum val­ue coverage?
A9: No. Only the low­est cost option that pro­vides min­i­mum val­ue cov­er­age needs to be afford­able to avoid the penal­ty. An employ­er is free to offer oth­er options that do not meet affordability.

Q10: Are there spe­cial rules for mul­ti­em­ploy­er plans?
A10: Yes. If the employ­er is required to make a con­tri­bu­tion to a mul­ti­em­ploy­er plan with respect to some or all of its employ­ees under a col­lec­tive bar­gain­ing agree­ment or relat­ed par­tic­i­pa­tion agree­ment and the mul­ti­em­ploy­er plan offers afford­able, min­i­mum val­ue cov­er­age to eli­gi­ble employ­ees, the employ­er will be con­sid­ered to have offered afford­able, min­i­mum val­ue cov­er­age. In addi­tion to the three afford­abil­i­ty safe har­bors, cov­er­age under a mul­ti­em­ploy­er plan is con­sid­ered afford­able if the employ­ee’s con­tri­bu­tion toward self-only cov­er­age does not exceed 9.5 per­cent (indexed to 9.56 per­cent in 2015, and 9.66 per­cent in 2016) of the wages report­ed to the mul­ti­em­ploy­er plan, based on either actu­al wages or an hourly wage rate under the bar­gain­ing agreement.

Deter­min­ing how many employ­ees you have under ACA is crit­i­cal to avoid­ing penal­ties. Request UBA’s com­pre­hen­sive ACA Advi­sor that answers over 120 ques­tions relat­ed to the play or pay penal­ty and count­ing employ­ees under ACA, including:

  • The def­i­n­i­tions of full time employees
  • How to count part-time employ­ees on a pro-rata basis
  • How to treat sea­son­al employees
  • Who the law con­sid­ers an “employ­ee”
  • Count­ing hours correctly
  • Deter­min­ing aver­age hours worked
  • Penal­ties that result if a “large employ­er” does­n’t offer coverage

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