Determining the Best Plan Offered
To determine whether a plan provides affordable coverage, the IRS only examines the “best” plan offered by the employer.
The best plan offered refers to:
- A plan that offers coverage for the employee and child dependents.
- If none of the plans offer coverage for child dependents, the best plan determination starts with Step 2 below.
- That has the highest level of coverage.
- Minimum Value Coverage is a higher level of coverage than Minimum Essential Coverage, and a plan that doesn't provide even Minimum Essential Coverage is the lowest level of coverage.
- Within the highest level of coverage, has the highest level of affordability, meaning it is the cheapest.
- To determine the price of the employee contribution, look to the premium for self-only coverage (meaning the contribution required to cover the employee only, and not his or her dependents).
Example 1
For example, if Company X offered the following plans:
- Plan A (Minimum Essential Coverage) -- covers child dependents
- Self-only employee contribution = $100/ month
- Plan B (Minimum Value Coverage) -- covers child dependents
- Self-only employee contribution = $120/ month
- Plan C (Minimum Value Coverage) -- covers employee only
- Self-only employee contribution = $110/ month
The company would select Plan B and use the $120/ month self-only employee contribution amount against an employee’s income to determine the affordability of the plan. This is because Plan B covers child dependents (whereas Plan C does not).
Of the plans that cover child dependents, Plan B offers a higher level of coverage than Plan A because Plan B is Minimum Value Coverage (rather than Minimum Essential Coverage).
Typically, using Plan C could result in the highest penalty because it does not offer coverage to dependents, which could trigger the Minimum Essential Coverage penalty.
Example 2
Here is another example where the company offers only Minimum Essential Coverage plans -- not Minimum Value Coverage, which has a higher level of coverage.
- Plan A (Minimum Essential Coverage) -- covers child dependents
- Self-only employee contribution = $100/ month
- Plan B (Minimum Essential Coverage) -- covers child dependents
- Self-only employee contribution = $80/ month
The company would select Plan B and use the $80/ month self-only employee contribution amount against an employee’s income to determine the affordability of the plan. This is because this company does not offer any Minimum Value Coverage plans, so Minimum Essential Coverage is the highest level of coverage of all plans that cover child dependents, and Plan B is the cheaper of the two Minimum Essential Coverage plans.
For additional assistance with determining the best plan offered, please reach out to your Broker.