Affordable Care Act

The Basic Facts

Minimum Essential Coverage – Adequate and Affordable

The ACA requires that health benefit plans provide Minimum Essential Coverage (MEC). MEC is a type of coverage an individual needs to have to meet the individual responsibility requirement under the ACA. This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage. The ACA defines coverage as affordable if the Full-time is not asked to pay more than 9.5 percent of household income — basically, adjusted gross income — for employee-only coverage under the employer’s least expensive coverage offering. The determination is a look-back determination, made after the close of the calendar year.

How To Comply with Affordable Coverage per the ACA

Employers are in no position to know a Full-time employee’s household income, so the IRS has adopted several safe harbors. The W-2 safe harbor provides that an employer may charge no more than 9.5 percent of an employee’s W-2 wages (wages reflected in Box 1 of the Form W-2) for employee-only coverage, the employer will be deemed to have made an affordable coverage offer.

What Is Minimum Value According to the ACA?

Under the ACA, a plan is considered to provide adequate coverage (also called minimum value) if the plan’s actuarial value (i.e., share of the total allowed costs that the plan is expected to cover) is at least 60%. In other words, the plan must cover at least 60% of the individual’s hospitalization costs across the plan. Anything less, the coverage may not be adequate.