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 (and although the GOP tax bill that was enacted in December 2017 does repeal the individual mandate penalty, that repeal doesn’t take effect until 2019. People who don’t have minimum essential coverage in 2018 will face a penalty when they file their taxes in early 2019).
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, 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 relies solely on one of those plans in place of health insurance would be subject to the ACA’s penalty for being uninsured, unless he or she is eligible for an exemption from the penalty.
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 major medical and small group 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. If you do, however, you’d be subject to the ACA’s individual mandate penalty unless you qualify for an exemption.
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. As of 2017, the national average cost of a bronze plan (and thus, the maximum penalty) was $3,264 for a single individual, and $16,320 for a family of five or more. the maximum penalties for 2018 won’t be announced until mid-2018, but they will certainly be larger than the 2017 maximums, as average premiums increased from 2017 to 2018.