The ACA’s employer mandate: What health care coverage must be provided?

If you are a large employer subject to the federal Affordable Care Act (ACA)’s employer shared responsibility mandate for health care coverage, you must provide to all full-time employees and their dependents, “minimum essential coverage” that is “affordable” and provides “minimum value” or else pay penalties to the IRS.

Do you know what kind of health coverage satisfies these requirements? As reported in previous issues of the Vigilant newsletter, this is the fourth installment in our labor law compliance series updating members on an IRS guidance published early this year on the ACA’s employer shared responsibility mandate. Each installment in the series will be posted on the Vigilant blog, in addition to various employment law resources.

The term “minimum essential coverage” isn’t yet well defined by the IRS, but it includes a group health plan sponsored by an employer. For now, if you have a major medical plan in place, consider these criteria met.

Whether an employer’s health coverage is considered “affordable” depends on how much the employee must pay for coverage. The ACA defines “affordable” coverage as coverage that costs the employee no more than 9.5 percent of his or her Form W-2 wages for the employee’s share of the employee-only tier of coverage. This is the standard for affordability regardless of what level of coverage the employee actually elects (employee-only, employee-plus child, employee plus spouse, employee plus family, etc.).

The last component of employee health coverage that must be met in order to avoid IRS penalties under the employer shared responsibility mandate is that the coverage must offer “minimum value.” This means that the coverage pays for at least 60 percent of benefits. The Department of Health and Human Services plans to develop an online “minimum value calculator” into which employers can plug in plan information such as deductibles, group health benefits, and copays to determine whether their plan meets the minimum value standard. The IRS is slowly filling in the blanks in guidance, but many more details need to be spelled out. Vigilant will continue to update its members on new developments regarding and employee healthcare coverage, employment laws and regulations, and human resources compliance. Stay tuned!