Obamacare: Minimum Essential Coverage vs. Qualified Healthcare Plan
This morning as I was reviewing my treasure trove of Affordable Care Act news (Google keyword searches yield about 200+ stories a day), I came across this article. Essentially, the reader in the article asked:
“ I’m a part-time worker and my current employer offers health insurance that does not meet the minimum standards of the Affordable Care Act,” Rickels wrote. “I talked to someone at the call center for the Affordable Care Act and was told that as long as I had health insurance through my employer I would not be fined. So I bought that insurance and now I’m hearing differently from my coworkers, and that I might be fined.”
Minimum Essential Coverage Explained
The responding author got the answer right, but I wanted to take some time today to try to explain the distinction a bit more robustly for the benefit of employers. The Affordable Care Act is a large document. It contains many sections, provisions, and directives. Lately, the big three mandates that dominate the news are three distinct mandates that are only somewhat related. First, you have the Contraception Mandate which is what Hobby Lobby and the Little Sisters are fighting from two different perspectives (respectively, as an employer and as a religious organization). Second, you have the Individual Mandate which is most commonly referred to as Obamacare (e.g., “Did you sign up for that Obamacare?”). Third, you have the Employer Mandate which is also sometimes called “Obamacare” by some employers I’ve spoken to as well. I am going to leave the Contraception Mandate for another day, but want to focus on how the Individual Mandate and the Employer Mandate demand different levels of health benefits from their respective target audience.
All individuals must carry Minimum Essential Coverage starting in 2014 or pay a penalty in their 2015 taxes (unless they are exempt) if they fail to do so—this is the Individual Mandate. Certain employers, (Applicable Large Employers), are required to offer full-time employees a Qualified Healthcare Plan during 2015 or risk paying penalties themselves starting in 2016. Minimum Essential Coverage (“MEC”) and Qualified Healthcare Plan (“QHP”) sound very similar, but they are actually two very different things. A QHP is more robust, more complete, insurance coverage than its MEC counterpart. For an insurance plan to be deemed a QHP it must have three things: (1) Minimum Essential Coverage, (2) Minimum Value, and (3) be Legally Affordable to the employee. There is a list of insurance products that qualify as Minimum Essential Coverage, but suffice it to say that essentially any employer-provided medical plan is likely to qualify as Minimum Essential Coverage. With limited exceptions, all of the plans on the Individual Marketplaces (also known as the Obamacare Exchanges) are QHPs. Employees that buy QHPs off of the exchanges/markertplaces are technically buying more insurance coverage than the law requires of them.
Employers, if possible, want to offer all full-time employees a QHP because doing so is the only manner by which to avoid paying penalties for not offering the right kind of coverage (or no coverage at all). Conversely, employees only need to carry MEC to avoid the Individual Mandate Penalties. So, again an employee satisfies his or her obligations simply by obtaining MEC coverage. An employer of such an employee is still open to Employer Mandate penalties if (1) the employee is a full-time employee, and (2) that employee goes to an exchange and obtains a subsidy. Offering full-time employees MEC coverage does not extinguish an Applicable Large Employer’s Employer Mandate penalty risk, but attempts to mitigate or minimize it. Employers that offer MEC typically are those transitioning into offering coverage (and are usually in industries or jobs where medical benefits have traditionally not been offered by employers). This is why the original reader question posited that he had insurance (probably some form of MEC coverage), but that he had heard that his employer’s coverage did not meat the ACA’s minimum standards.