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 health insurance policies sold since January 1, 2014 have been compliant with the ACA’s regulations, and are considered minimum essential coverage.
The ACA requires 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 are not subject to the ACA’s penalty for being uninsured. But the penalty is being eliminated as of 2019; people who didn’t have minimum essential coverage in 2018 still have to pay the penalty unless they qualify for an exemption, but people who are uninsured in 2019 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.
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 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.
Essential health benefits: Not the same thing as minimum essential coverage
It’s important to understand that essential health benefits are not the same thing as minimum essential coverage. 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, despite the fact that 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?
In 2018, the penalty for being uninsured (or for having coverage that does not meet the definition of minimum essential coverage) is 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 is used, the penalty cannot exceed the national average cost of a bronze plan. The maximum penalty is the national average cost of a bronze plan, which the IRS calculated to be $3,396 for a single individual and $16,980 for a family of five or more. These penalties will be assessed when people file their 2018 tax returns in early 2019.
Starting in 2019, there is no longer a federal penalty for being uninsured. But DC, Massachusetts, and New Jersey will impose their own penalties, and Vermont will join them starting in 2020.
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.