A lowest-cost plan that fails the ACA's 60% minimum value test eventually turns into an IRS bill. That bill is a Form 226-J employer penalty letter, and it shows up two to three years after the damage is done.
Right now, vendors are selling stripped-down plan designs to employers of all sizes as a way to hold down the cost of the required low-cost offering. The pitch sounds reasonable. The risk isn't.
You won't know you have a problem until your employees start collecting marketplace subsidies. And you won't hear from the IRS until long after that.
Key takeaways
- The ACA requires your lowest-cost plan option to provide minimum value, meaning it pays at least 60% of expected plan costs (actuarial value).
- Multiple vendors are marketing similar stripped-down plan designs to mid-market employers as a way to hold down the cost of that offering.
- Employees who decline a plan that fails minimum value and collect marketplace subsidies trigger the IRS matching process. The output is a Form 226-J employer shared responsibility payment letter.
- That letter arrives two to three years after the fact. At $5,010 per subsidized employee per year for 2026, the exposure stacks across plan years.
- The cheap fix is a written actuarial certification that your low-cost option clears 60%, in hand before open enrollment.
- The fastest independent read: send your plan summary to the DOL's EBSA and ask directly whether it provides minimum value as defined by the ACA.
What does ACA minimum value actually require?
Minimum value means the plan pays at least 60% of the total allowed costs of benefits provided to a standard population. That's the actuarial value floor set by the ACA. It's not a benefits checklist. It's a math test.
A plan can cover all the right categories and still fail when the cost-sharing structure shifts too much onto employees. The IRS employer shared responsibility guidance is blunt about the standard: employers with 50 or more full-time equivalent employees must offer at least one plan that meets both affordability and minimum value standards. Miss either test and you're exposed.
The DOL's EBSA ACA implementation FAQs treat minimum value as a substantive coverage standard, not a disclosure requirement. I'm not an actuary, and I won't tell you whether any specific plan design clears 60%. That's exactly the point. Someone needs to run that math before you offer the plan, not after the 226-J arrives.
How does the 226-J process actually work?
The IRS cross-references your W-2 and ALE filing data with marketplace enrollment records. An employee who was offered your plan and still received an ACA premium tax credit gets flagged. A plan that failed minimum value or affordability turns that flag into your employer shared responsibility payment.
The letter comes two to three years later. By then, multiple plan years may be on the table. The IRS outlines the proposed penalty, gives you a response window, and expects documentation that your plan actually met the standard. No documentation, no defense. The penalty stands.
The math gets big quickly. The 2026 penalty for coverage that fails minimum value is $5,010 per subsidized full-time employee per year. A 200-person company with a dozen subsidy recipients across two plan years is into six figures.
Why are these plan designs spreading right now?
Vendors are marketing very similar stripped-down plan structures across mid-market employers as a way to reduce the cost of the required low-cost plan offering. The logic sounds clean: the employee contribution has to clear the affordability threshold, so a skinnier benefit looks like an easy way to hold premium down.
The problem is that minimum value and affordability are two separate tests. Affordability looks at what the employee pays. Minimum value looks at what the plan pays. Clearing one says nothing about the other.
Affordability vs. Minimum Value: Two Separate Tests| Test | What it measures | The bar | Failing it |
|---|
| Affordability | Employee premium as a share of income | Contribution at or below the year's affordability percentage | Subsidy eligibility, then 226-J exposure |
| Minimum value | Share of costs the plan pays | At least 60% actuarial value | Same subsidies, same 226-J exposure |
This isn't a fringe product from one unusual vendor. Similar designs are appearing across multiple carriers and administrators. That's what makes it worth flagging now, before your renewal, not after the letter arrives.
The vendor's marketing materials don't shift the obligation either. Plan sponsor duties stay with you, the same way delegating benefits decisions doesn't make you safe under ERISA.
What should you do before your next open enrollment?
First, get a written actuarial determination on your lowest-cost plan option. Not a vendor assurance. An actual actuarial certification that the plan meets 60% actuarial value.
A broker or carrier that can't produce that documentation hasn't given you an answer. It's handed you exposure. Those aren't the same thing.
Second, contact the DOL's Employee Benefits Security Administration directly. Send them a copy of your plan summary and ask whether the plan provides minimum value as defined by the ACA. This is exactly the kind of question EBSA handles. It costs you nothing. And it creates a documented record that you took the question seriously before open enrollment, not after a 226-J arrived.
Frequently asked questions
What is a Form 226-J letter?
A Form 226-J is the IRS's notice proposing an employer shared responsibility payment. It arrives when the IRS determines that an applicable large employer either failed to offer minimum essential coverage, offered coverage that didn't meet minimum value, or offered coverage that wasn't affordable, and at least one employee received a marketplace premium tax credit as a result.
How long does it take for a 226-J letter to arrive after the problem occurs?
Typically two to three years. The IRS matches marketplace subsidy data against employer ALE filings and W-2 records. That process takes time, which means multiple plan years can be caught up in it by the time the letter lands.
What's the difference between affordability and minimum value?
Affordability is about how much the employee pays in premium, measured as a percentage of household income. Minimum value is about how much the plan pays out, measured as actuarial value against expected plan costs. A plan must pass both tests independently. Passing one doesn't offset failing the other. The current thresholds and penalty amounts live on our compliance page with the verified 2026 numbers.
Can I rely on my vendor or carrier to confirm the plan meets minimum value?
A vendor assurance isn't the same as an actuarial certification. The IRS expects documented evidence that the plan cleared the 60% actuarial value threshold, and a sales deck won't carry that weight. Get it in writing from an actuary.
The math is there. You just need someone to show you.
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