Explanation of Adequate and Affordable Coverage

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Minimum essential coverage (MEC) includes most broad-based medical coverage typically provided by employers. It does not include certain specific coverage such as those only for accident or disability income insurance, stand-alone dental and vision insurance, or workers' compensation insurance.

Employer health coverage that covers less than 60 percent of the cost of medical expense is not considered to provide minimum value. The Department of Health and Human Services created minimum value and actuarial calculators to assist employers.

Coverage is considered affordable if the employees' required premium contribution for self-only coverage to the lowest cost plan that offers MEC does not exceed 9.5 percent of the employee's modified adjusted gross household income. Employers may not be able to determine an employee's gross household income. However, they may use one of three methods (affordability safe harbors) to help them determine if the coverage they are providing employees is affordable:

  • Form W-2 Safe Harbor: Use employee's Form W-2 wages shown in Box 1.
  • Rate of Pay Safe Harbor: Multiply an employee's hourly rate by 130 to determine monthly wages, or use a salaried employee's monthly pay.
  • Federal Poverty Line Safe Harbor: Use the federal poverty line for a single individual.

Note: Certain conditions must apply. Please refer to the IRS Shared Responsibility for Employers Regarding Health Coverage Proposed Rule for more information.