What happens if I buy insurance but it doesn’t meet ACA’s minimum essential coverage standards?

Q. What happens if I buy insurance but it doesn’t meet the ACA’s minimum essential coverage standards?

A. With the exception of short-term health insurance and other non-ACA-regulated plans (travel insurance, accident supplements, medical discount plans, workers’ comp coverage, etc.), all individual major medical health insurance policies sold since January 1, 2014 have been compliant with the ACA’s regulations, and are considered minimum essential coverage.

Until 2019, the ACA required that most Americans maintain health insurance coverage or pay a penalty. Minimum essential coverage just means health insurance that is considered good enough to meet the ACA’s individual mandate; people who have minimum essential coverage were not subject to the ACA’s penalty for being uninsured.

But the penalty was eliminated after 2018; people who are uninsured now will not owe a penalty unless they’re in a state that has established its own penalty.

So you won’t be penalized by the federal government, starting in 2019, if you buy a health plan that doesn’t provide minimum essential coverage. But it’s important to understand that you’ll have lesser quality coverage that won’t include the ACA’s consumer protections and might leave you with significant gaps in your coverage if and when you need to use it.

For some SEPs, you need prior minimum essential coverage

And it’s also important to understand that some of the special enrollment periods for ACA-compliant plans are only available if you had minimum essential coverage in place prior to the qualifying event that triggers your special enrollment period. [There are some exceptions: Pregnancy Medicaid, CHIP Unborn Child, and Medically Needy Medicaid are not considered minimum essential coverage, but their termination does trigger a loss-of-coverage special enrollment period, and they do count as prior coverage in situations where prior minimum essential coverage is necessary in order to trigger a special enrollment period.]

If you experience a qualifying event that would otherwise allow you to enroll in an ACA-compliant plan, you may not be able to do so if you’re enrolled in a plan that’s not minimum essential coverage. And other than the exceptions described above, the termination of a plan that’s not minimum essential coverage will not trigger a loss-of-coverage special enrollment period.

What plans are considered minimum essential coverage?

Minimum essential coverage includes all new major medical health plans sold since 2014—all of which are fully compliant with the ACA, including plans purchased outside the exchange. It also includes grandmothered and grandfathered plans that were already in force prior to 2014. (Those plans are not fully compliant with the ACA, but they meet the definition of minimum essential coverage). And it includes employer-sponsored plans (see caveat below) and government-sponsored plans (VA, Medicare, Medicaid, CHIP).

Minimum essential coverage does NOT include short-term / temporary health insurance, travel insurance, workers’ comp, fixed indemnity plans, supplemental coverage, specific disease policies, dental/vision plans, or medical discount plans.

Those plans are not regulated by the ACA, and regardless of when they were purchased, a person who relied solely on one of those plans in place of real health insurance between 2014 and 2018 would have been subject to the ACA’s penalty for being uninsured, unless he or she was eligible for an exemption from the penalty.

Some employer-sponsored plans provide minimum essential coverage but are actually skimpy plans

As explained here, some large employers offer coverage that doesn’t provide minimum value (doing so can result in a penalty for the employer under the ACA’s employer mandate, but it’s generally a smaller penalty than the employer would have faced if they didn’t offer coverage at all). Because it’s an employer-sponsored plan,  it’s still considered minimum essential coverage, but the employees who are offered these skimpy plans can purchase coverage in the exchange instead, with premium subsidies if they’re otherwise eligible.

And if an employer’s coverage drops below the minimum value and/or affordability requirements mid-year, covered employees are eligible for a special enrollment period during which they can switch to a plan offered in the individual market, with premium subsidies if they have a subsidy-eligible income.

Essential health benefits: Not the same thing as minimum essential coverage

We’ve already discussed how minimum essential coverage isn’t the same thing as minimum value. But another term that often gets confused in the mix is essential health benefits — which are not the same thing as minimum essential coverage or minimum value.

Essential health benefits are covered on all new individual and small group major medical plans with effective dates of January 1, 2014 or later (including plans purchased outside the exchange). But they are not required to be covered on grandmothered or grandfathered plans, or on large group plans, despite the fact that all those plans are considered minimum essential coverage.

The only way to purchase a new plan at this point that doesn’t include essential health benefits and that doesn’t qualify as minimum essential coverage is to purchase the sort of coverage described above that isn’t regulated by the ACA. With the exception of short-term health insurance, these plans typically aren’t designed to be stand-alone coverage anyway, so it’s unlikely that you’d be buying one of them as your only source of coverage.

How much is the penalty?

Starting in 2019, there is no longer a federal penalty for being uninsured. But DC, Massachusetts, New Jersey, Rhode Island, and California impose their own penalties when residents don’t have insurance.

Most of these states are using the same penalty that applied at the federal level in 2018. That is, a penalty equal to the greater of 2.5 percent of household income above the tax filing threshold OR $695 per adult (half that amount per child), up to a maximum of $2,085 per household. If the percentage of income calculation was used, the penalty could not exceed the national average cost of a bronze plan, so states with their own mandates are generally using the average cost of a bronze plan within that state as the maximum penalty.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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