Minimum Essential Coverage

Minimum essential coverage is the category of health coverage that satisfies the Affordable Care Act's individual coverage requirement. Section 5000A of the Internal Revenue Code still provides that an applicable individual "shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month," and section 5000A(f)(1) lists what qualifies. HealthCare.gov describes it as "Any insurance plan that meets the Affordable Care Act requirement for having health coverage," noting that it is "sometimes called 'qualifying health coverage.'"

The requirement survives, but its federal penalty does not. The Tax Cuts and Jobs Act reduced the payment to "Zero percent" and "$0" for months beginning after December 31, 2018. What keeps the term in use is everything else that is tied to it: the premium tax credit, Marketplace enrollment rules, health coverage reporting on Forms 1095, and state mandates such as California's.

What counts. Section 5000A(f)(1) lists:

• Government programs: Medicare Part A, Medicaid, CHIP, medical coverage for the military under chapter 55 of title 10 (including TRICARE), VA health care programs as determined by the Secretary of Veterans Affairs, Peace Corps volunteer coverage, and the Defense Department's Nonappropriated Fund Health Benefits Program.
• An eligible employer-sponsored plan: a group health plan or group health insurance offered by an employer, including a governmental plan.
• Individual market coverage, meaning a health plan offered in a state's individual market, inside or outside the Marketplace.
• Grandfathered health plans, and other coverage that HHS recognizes.

Medicare Part A is the part the statute names. A person who for some reason has only Medicare Part B is not on that list.

What does not count. Coverage consisting only of excepted benefits is excluded: accident or disability income coverage, liability and workers' compensation always, and stand-alone dental, vision, long-term care, specified-disease and hospital indemnity coverage when sold as a separate policy. Treasury's regulation defines individual market coverage to exclude short-term limited duration insurance, so a short-term policy is not minimum essential coverage either. A health care sharing ministry is not insurance and does not count.

Why it still matters with a $0 federal penalty.

• The premium tax credit. A month in which a person is eligible for minimum essential coverage other than individual market coverage is not a coverage month, so no credit is allowed for that person. For employer coverage the statute adds a gate: an employee is not treated as eligible unless the plan is affordable, meaning the required contribution does not exceed a percentage of household income that is adjusted each year, and provides minimum value, meaning the plan pays at least 60% of covered costs. Enrolling in the employer plan ends the credit regardless.
• Special enrollment. Losing minimum essential coverage opens a Marketplace special enrollment period. The expiry of a short-term policy does not, because the policy never counted.
• QSEHRA reimbursements. Reimbursements from a qualified small employer health reimbursement arrangement are tax-free only for a month in which the employee has minimum essential coverage; for any other month they are included in the employee's gross income.
• State mandates. California's Franchise Tax Board runs a "Minimum Essential Coverage Individual Mandate" with a state penalty.

1. Check the coverage type against the 5000A(f)(1) list: job-based, individual market, grandfathered or a listed government program counts. Short-term, sharing ministry and stand-alone excepted benefits do not.
2. For federal tax purposes, nothing is owed for a month without coverage after 2018. Forms 1095-B and 1095-C still report coverage, and the IRS has dropped the coverage checkbox from Form 1040.
3. For the premium tax credit, test each month. Eligibility for minimum essential coverage other than individual market coverage ends the credit for that person, with the affordability and minimum-value tests applying to employer plans.
4. Check state law. A state with its own mandate, such as California, can charge a penalty on the state return.

Consider an example: Callum's employer offers a QSEHRA, and over the year it reimburses $2,400 of his medical bills. If he has minimum essential coverage in every month he received care, the reimbursements are tax-free. If he had no minimum essential coverage in any of those months, the whole $2,400 is included in his gross income, and at a 22% marginal rate that adds $2,400 x 22% = $528 to his federal income tax.

Pros

• A single defined list answers whether coverage "counts" for federal purposes, from employer plans to Medicaid.
• There is no federal tax penalty for going without it after 2018.
• Losing it is a defined trigger for Marketplace special enrollment.

Cons

• Eligibility alone, not just enrollment, can end premium tax credit eligibility, which catches people who decline an affordable job-based plan.
• Cheaper alternatives such as short-term policies and sharing ministries look like coverage and do not count.
• State mandates can still impose a penalty that the federal rules no longer do.