What It Means When Health Insurance Provides Minimum Value

Minimum value is a health insurance term that came into being with the Affordable Care Act and is used to measure whether an employer-sponsored plan is providing comprehensive health coverage.

The details are codified into law in Section 26 U.S. Code 36B, which lays out the parameters for premium tax credit (premium subsidy) eligibility, along with additional IRS regulations that were published in 2014.

This article will explain what minimum value is, why it's important, and how it differs from some other related—but different—concepts and terminology.

Minimum value is a concept that applies to employer-sponsored health insurance, while premium tax credits are used to offset the cost of individual/family (also called non-employer-sponsored, or non-group) health coverage.

But a person who is eligible for employer-sponsored health insurance that's considered affordable and that provides minimum value is not eligible for premium tax credits in the individual market—which is how the two concepts are linked together.

And large employers are potentially subject to financial penalties if the health coverage they offer doesn't provide minimum value.

First, it's helpful to clear up some often-confused ACA terminology: minimum value, minimum essential coverage, and essential health benefits are three different concepts. These three terms cannot be used interchangeably—they all have specific definitions and functions under the ACA.

Minimum Essential Coverage vs. Essential Health Benefits

Minimum essential coverage refers to the coverage that a person must have to avoid the ACA's individual mandate penalty. Washington, D.C., Massachusetts, New Jersey, California, and Rhode Island have their own individual mandates and associated penalties, but the federal penalty was reduced to $0 as of 2019.

Minimum essential coverage does not necessarily have to be ACA-compliant. For example, grandmothered and grandfathered health plans do not have to be fully compliant with the ACA, but they are considered minimum essential coverage. And by definition, all employer-sponsored health plans are considered minimum essential coverage—even if they have limited benefits and don't provide minimum value.

Essential health benefits, on the other hand, are a set of 10 basic benefits that all individual and small group plans must cover if they have effective dates of January 2014 or later (in most states, "small group" means fewer than 50 employees, but in California, Colorado, New York, and Vermont, it means fewer than 100 employees).

The specifics of exactly what must be covered under each essential health benefit are determined at the state level, according to each state's essential health benefits benchmark plan.

Except for preventive care, large group plans (which means 50 or more employees in most states or 100 or more employees in California, Colorado, New York, and Vermont) do not have to provide coverage for essential health benefits. This is because there are different rules for complying with the ACA depending on the size of the business.

But if a large group plan (with an effective date of January 2014 or later) does cover an essential health benefit, there can't be any lifetime or annual cap on the dollar amount that the plan will pay for that benefit.

It's possible, however, to have an employer-sponsored plan that is considered minimum essential coverage but that doesn't provide minimum value and/or doesn't cover some of the essential health benefits.

Minimum Value

For an employer-sponsored health plan to provide minimum value, it has to pay for at least 60% of total average costs for a standard population of people covered by employer-sponsored health insurance, and it has to provide "substantial coverage" for inpatient care and physician services.

Minimum value is similar to the concept of actuarial value that's used for individual and small-group health plans, but there are some differences in how the values are calculated.

ACA Terms

Under the terms of the ACA—specifically, Section 36B(c)(2)(C)(ii)—a plan would provide minimum value as long as it paid for at least 60% of total covered costs with no other requirements. However, there were concerns that some large employers were providing "skinny" plans that didn't cover much but that would still fit the definition of providing minimum value.

To address this, the IRS published Notice 2014-69 in late 2014. The notice added the requirement that an employer-sponsored plan must include coverage for physician services and inpatient care in order to provide minimum value.

Small Group Market

All health plans (with effective dates of January 2014 or later) that are sold in the small group market are providing minimum value since they have to include essential health benefits (inpatient and outpatient care are both considered essential health benefits) and since small group plans must have actuarial values of at least roughly 60%.

Large Group Market

In the large group market, employers can use a minimum value calculator developed by HHS to ensure that the coverage they're offering is providing minimum value. Large group plans are not required to cover the essential health benefits, although most of them do.

Self-Insured Plans

Employers of any size can opt to self-insure their employees' health benefits instead of purchasing coverage from a health insurance company.

Self-insured plans are fairly rare among small employers, but account for the large majority of very large employers' health plans. Overall, nearly two-thirds of people with employer-sponsored health coverage are enrolled in self-insured (self-funded) plans.

If a small employer (up to 50 employees in most states) opts to self-insure, they do not have to include coverage for the essential health benefits—other than preventive care, which does have to be covered on all non-grandfathered small group, large group, and self-insured plans. And self-insured small group plans do not have to conform to the ACA's actuarial value rules.

Self-insured large group plans do have to provide minimum value to ensure that the employer won't be subject to a penalty (discussed below).

Penalties

Why does all of this matter? It matters to large employers because, to avoid the ACA's employer mandate penalty, they must offer coverage that is considered affordable and that provides minimum value.

It also matters to individuals—if they have access to an employer-sponsored plan of any size that's affordable and that provides minimum value, they're not eligible for premium subsidies in the health insurance Marketplace/exchange.

For large employers, there are two different employer mandate penalties. The first one applies to large employers that don't offer at least some sort of health coverage to at least 95% of their full-time employees, and at least one of those full-time employees ends up buying a plan in the exchange and qualifying for a premium subsidy.

The other penalty applies if the employer does offer coverage but it's not affordable and/or does not provide minimum value, and at least one full-time employee ends up getting a premium subsidy in the exchange. The employer mandate penalty amounts are indexed, so they've increased each year.

Minimum Value and Your Coverage

If you get your health coverage through your employer, chances are good that it's providing minimum value. And if your employer offers coverage but you've opted not to participate in the plan, chances are still good that the plan your employer offers does provide minimum value.

Small group plans (unless they're grandfathered or grandmothered, which are becoming increasingly rare) all provide minimum value due to the way they have to be designed to comply with the Affordable Care Act.

(As described above, a small employer can opt to self-insure instead of purchasing small group health insurance, and the rules are different in that case. But most self-insured plans, of any size, do provide minimum value.)

You can check with your employer to determine whether the health plan they're offering you is providing minimum value (this is the form you can ask your employer to complete; it includes a question about whether the coverage they offer is providing minimum value).

If it turns out that it isn't, you have the option to decline it and apply for coverage in the health insurance exchange in your state, and you can get premium subsidies (and cost-sharing subsidies) if your income makes you eligible for them.

To clarify, you can decline your employer's plan and enroll in a plan through the exchange regardless of whether your employer's plan provides minimum value. But if your employer's plan does provide minimum value and is considered affordable, you're not going to be eligible for subsidies in the exchange, regardless of your income.

Summary

Minimum value is an ACA-specific word that describes whether an employer-sponsored health plan is considered robust enough. To provide minimum value, an employer-sponsored plan must cover at least 60% of average costs for a standard population of people covered by employer-sponsored health insurance, and must provide substantial coverage for inpatient and physician services.

A Word From Verywell

Most employer-sponsored health plans do provide minimum value. But if you're offered a skimpy employer-sponsored plan (for example, a plan that only covers a few thousand dollars worth of services, or that only covers outpatient care), you do not have to accept it. If the plan isn't providing minimum value, you can decline it and enroll in a health plan through the Marketplace/exchange in your state instead. And you may be eligible for premium subsidies to offset some of the cost.