Play or Pay and Minimum Essential Coverage: What, When and How (Much)?

by Pullman & Comley, LLC

Beginning in 2014, the Affordable Care Act’s employer shared responsibility rules, the so called “play or pay” rules, impose penalties on an employer with more than 50 “full-time equivalent” employees (a large employer) if the employer (1) does not offer “minimum essential coverage” under an eligible employer-sponsored medical plan to its full-time employees, or (2) offers minimum essential coverage, but it is either not “affordable” or does not provide the necessary level of coverage. The following provides a brief summary of these “play or pay” rules.

First-Tier Penalty

A large employer will be liable for what is referred to as the “first tier penalty” if it does not offer “minimum essential coverage” to substantially all full-time employees and their dependents. This penalty is designed to motivate employers to provide medical coverage, and intended to penalize those who do not offer a healthcare plan. Therefore, virtually any private employer- sponsored healthcare plan that offers medical coverage will provide “minimum essential coverage.” Also, any plan approved by the Connecticut Department of Insurance to be offered in the state will be considered to provide minimum essential coverage.

If a large employer does not maintain a health care plan, it will be liable for the first-tier penalty equal to $166.67 per month ($2,000/year) times the number of the employer’s full-time employees (excluding the first 30), if at least one full-time employee enrolls in a qualified health plan through a state or federal administered exchange and the employee receives a subsidy toward the cost of the coverage. If no employee enrolls in an exchange or if no employee receives a subsidy, there is no penalty.

Second-Tier Penalty

Each healthcare plan must also pass a Minimum Value Test and an Affordability Test, or the employer will be subject to what is referred to as the “second-tier penalty.” Given that a health care plan will rarely fail to provide “minimum essential coverage,” employers should focus on passing these tests to avoid this penalty.

Minimum Value Test

To pass the Minimum Value Test, the plan must offer health coverage that pays at least 60% of the cost of the covered services provided under the plan (as determined by a complicated actuarial methodology). There are three ways to determine whether a plan passes this test:

  • First, the IRS and the Department of Health and Human Services intend to develop an on-line “Minimum Value calculator” to determine whether a plan satisfies this 60% threshold. By inputting requested data about the benefits provided, an employer may determine if the Minimum Value Test is satisfied.
  • Second, the IRS provides a number of safe-harbor checklists listing acceptable levels of benefits. If the plan provides coverage that is at least as generous as any of the safe-harbor checklists, the plan satisfies this test.
  • Third, where the Minimum Value calculator or checklist safe-harbors are not appropriate, for example, if the plan contains nonstandard features (such as limitations on the number of doctor visits or on the amount of covered visits in the hospital), a plan will have the option of engaging an actuary to determine the plan’s minimum value.


An employer’s plan will pass the Affordability Test if the monthly premium for employee-only coverage does not exceed 9.5% of one-twelfth of the annual poverty level for a single person. Currently the annual poverty level is $11,490, so to satisfy this test the monthly premium cannot exceed $90.96.

If that is not satisfied, the Affordability Test may also be passed if on an employee by employee basis the monthly premium does not exceed 9.5% of the employee’s monthly wages. Penalties would only be incurred for those employees for whom the monthly premium exceeds 9.5% of monthly wages.

If the plan fails either the Minimum Value Test or Affordability Test, as outlined above, the second tier penalty will be (1) $250/month ($3,000/year) multiplied by (2) the number of full-time employees who enroll in a state or federal administered exchange for coverage and who receive the subsidy. However, the penalty cannot exceed the penalty amount that would apply under the first-tier penalty had the employer not offered health plan coverage at all. In other words, the employer cannot be penalized more by having a plan than by not offering one at all.

When assessing potential exposure to the penalties, an employer should also bear in mind that not all full-time employees that purchase their health insurance coverage from a state or federal exchange will be eligible for a subsidy, and so may not trigger the penalty. An employee will not qualify for the subsidy if: (1) the employee’s household income exceeds 400 percent of the federal poverty level for a single person (which currently equates to $45,960); (2) the employee is eligible for Medicare or Medicaid coverage; (3) the employee has coverage through a spouse’s employer sponsored plan that offers minimum essential coverage and is both affordable and provides minimum value; or (4) the employee elects to purchase coverage other than through a state or federal exchange.

Understandably, the “play or pay” rules are complex and little time remains for planning around these rules before they become effective January 1, 2014. This summary merely highlights some of the key elements addressed in the current guidance that employers need to consider. We recommend that employers work with their plan advisors now to develop a comprehensive strategy to comply with the employer “play or pay” rules.

George J. Kasper is a partner and Ira D. Reifer is an associate in the Employee Benefits practice at Pullman & Comley, LLC. 

Hear from both of them at CBIA’s 2013 Compensation and Benefits Conference—sponsored by Pullman & Comley, LLC,—on April 10 in Cromwell. Details and registration >>

To link to the full newsletter please click here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pullman & Comley, LLC | Attorney Advertising

Written by:

Pullman & Comley, LLC

Pullman & Comley, LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.