Definitions Essential to Understanding ‘Pay or Play’ Compliance
In general, under the employer shared responsibility (“pay or play”) provisions of the Affordable Care Act (ACA), applicable large employers—generally those with 50 or more full-time employees, including full-time equivalent employees—may be subject to a penalty if they do not offer minimum essential coverage that is affordable and provides minimum value to their full-time employees (and their dependents).
Here are definitions to help employers understand these key terms:
Minimum Essential Coverage: Minimum essential coverage includes, among other things, coverage under an employer-based plan (including self-insured plans, retiree plans, and COBRA coverage). It does not include fixed indemnity, life insurance, dental, or vision coverage. Click here for more on what qualifies as minimum essential coverage.
Affordable Coverage: For plan years beginning in 2018, coverage is generally considered affordable if the employee’s required contribution for the lowest cost self-only health plan is 9.56% or less of his or her household income for the taxable year. Given that employers are unlikely to know an employee’s household income, for purposes of pay or play, they may use a number of safe harbors to determine affordability, including reliance on Form W-2 wages.
Minimum Value: An employer-sponsored plan provides minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Employers generally must use a minimum value calculator developed by the U.S. Department of Health and Human Services (HHS) to determine if a plan with standard features provides minimum value. Plans with nonstandard features are required to obtain an actuarial certification for any nonstandard features. HHS has also proposed regulations for certain safe harbor plan designs that will satisfy minimum value.