Affordable Care Act's Confusing Terminology

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One reason for the Patient Protection and Affordable Care Act's (PPACA) many critics is the way the law is worded.

In addition to being well over 1,000 pages long, the act contains layers of definitions on top of definitions that make it almost impossible to understand.

Other employment laws use the simplest of language to state the threshold number of employees needed for the law’s requirements to apply. Not so the PPACA, which asks employers to ensure they use the right threshold for different requirements.

It will likely take years to fully comprehend the law’s confusing terminology. Consider just the following examples.

“Essential health benefits” sound like, but are different from, “minimum essential coverage,” which sounds like but also is different from “minimum value coverage.” And “minimum essential coverage” means two completely different things.

Linda Rowing, compliance director at United Benefit Advisors (UBA), pointed out the confusing overlap in the law’s terminology in a recent interview. She said the most confusion arises from the similarly sounding “minimum essential coverage” and “minimum value coverage.”

But there is confusion, as well, between “essential health benefits” and “minimum essential coverage.” As of 2014, individual and small group market plans must provide coverage for 10 essential health benefits:
  • Ambulatory/outpatient patient services;
  • Emergency services;
  • Hospitalization;
  • Maternity and newborn care;
  • Mental health and substance abuse services, including behavioral health treatment;
  • Prescription drug coverage;
  • Rehabilitative and habilitative services and devices;
  • Lab services;
  • Preventive and wellness services and chronic disease management; and
  • Pediatric services, including dental and vision care for children.

Don’t expect the definition of a small plan to be anything as simple as one number, however. Instead, small plans are believed to be those with fewer than 50 employees. A plan that has more than 100 employees is large. There is a lack of clarity for companies and plan sponsors who have between 51 and 99 employees.
Also in 2014, the “pay or play” penalty ($2,000 per employee, excluding 30 full-time employees) will apply to “large employers” if plan sponsors with more than 50 full-time employees (30 or more hours a week or full-time equivalent employees) do not offer minimum essential coverage.

This requirement is not to be confused with the minimum essential coverage that each American must have in 2014 or face a tax penalty. Yes, these different requirements are sometimes referred to with the exact same words. That individual penalty is 1 percent of income or $95, whichever is greater.

A way to keep these two types of minimum essential coverage distinct is to refer to the requirement for all Americans to obtain minimum essential coverage as the “individual mandate.”

Minimum essential coverage is different from minimum value coverage.

These ill-defined references with this law adds further confusion. “Minimum coverage,” for example, begs the question: minimum essential or minimum value coverage?

To make matters worse, the law has a plethora of varying penalties for different sections of the law. Minimum essential coverage has a $2,000 penalty per employee, while minimum value coverage has a $2,000 to $3,000 penalty.

Here is the actual requirement for determining something usually as straightforward as a penalty. When 50 or more employees are offered coverage, if an employee receives a premium tax credit on an exchange, the employer would be penalized the lesser of an annual $3,000 for each full-time employee who declines coverage and gets coverage on the exchange or $2,000 for each full-time employee, according to Gallagher Benefit Services’ Healthcare Reform Questions & Answers for Employers.

One further question is whether the minimum value coverage penalty of $2,000 imposed annually, like the $3,000 penalty, or just one time, like the minimum essential coverage penalty? And is the minimum essential coverage penalty per full-time employees, like the minimum value coverage penalty, or is it per any employee, regardless of whether the worker is part time or full time? When does the employer find out that the employee has been given a premium tax credit, so it can budget for that? It remains very unclear.

In a May 14, 2013, press conference at the White House, President Barack Obama said, “Basically, there are two main things that the American people need to know about this law and what it means. First, if you’re one of the nearly 85 percent of Americans who already have health insurance—whether it’s through your employer, or Medicare or Medicaid—you don’t have to do a thing. This law already provides you with a wide array of new benefits, tough new consumer protections, stronger cost-control measures than existed before the law passed. And those things are already in place—you’re benefitting from them. You just may not know it. Making sure that insurers can’t take advantage of you. Making sure that your child can stay on your health insurance until they’re 27 years old.

“So a lot of those provisions are already in place, providing help and assistance to people all across the country. Now, second, if you’re one of the tens of millions who don’t have health insurance, beginning this fall, you’ll finally be able to compare and buy quality, affordable private plans that work for you. So that’s what you need to know. If you’ve already got health insurance, this has just enhanced it. And if you don’t, you’re going to be able to get it.”

As with many laws that emerge from Congress, the devil will remain in the details. Stay tuned for more.


Hedley Lawson, Contributing Editor
Managing Partner
Aligned Growth Partners, LLC
707-217-0979