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The PACE Act and What It Means for California

The PACE Act and What It Means for California

The PACE Act and What It Means for California, Healthcare Reform Knowledge Center, Catrina Reyes, J.D., M.P.A., Policy Analyst and Compliance Manager
Catrina Reyes, J.D., M.P.A., Policy Analyst and Compliance Manager

On October 7, 2015, the President signed into law HR 1624 or the Protecting Affordable Coverage for Employees Act (PACE Act).

Under current law in most states, including California, employers with 51 to 100 employees are considered large employers, but as of January 1, 2016, the Affordable Care Act (ACA) would have redefined them to be small employers for purposes of health insurance markets. The PACE Act amends the Affordable Care Act (ACA) and the Public Health Service Act (PHSA) to continue to define employers with 51 to 100 employees as large employers. States, however, have the option to extend the definition of small employers as those who “employed an average of at least 1 but not more than 100 employees on business days during the preceding calendar year.”

The PACE Act would not affect California, because California already enacted legislation (AB 1083) that expands the definition of small employers to include employers with 51 to 100 employees beginning January 1, 2016. California, however, could enact legislation to keep the definition to employers with 1 to 50 employees. Keeping the definition to employers with 1 to 50 employees in California may have unintended consequences. For instance, it would further shrink the small group market when also considering California Senate Bill (SB) 125. On June 17, 2015, the Governor approved SB 125. A section of SB 125 revises the definition of small employer for plan years commencing or renewing on or after January 1, 2016. The definition of small employer, for purposes of determining employer eligibility in the small group market, will no longer be based on a count of eligible employees, but shall instead be determined by taking the sum of the total number of full-time employees and full-time equivalent employees for a calendar month. Based on this counting methodology, many employers may no longer be eligible for the small group market, because it adds part-time employees to the count. However, the expansion of the small group market to include employers with 51 to 100 employees may offset the contraction of the small group market caused by SB 125.

There certainly are positives for both employers and the government to continue to define employers with 51 to 100 employees as large employers. Employers with 51 to 100 employees would not be subject to more restrictive rating and benefit requirements that could reduce benefit flexibility and increase premiums. Moreover, the Congressional Budget Office anticipates that “premiums would be lower in most years, which would reduce the share of employees’ compensation that is non-taxable and increase the share that is taxable. Those changes would increase federal revenues.” Nonetheless, there may also be an effect on the long term viability of the small group market when it is reduced in size, as mentioned above, as well as long term benefits. For instance, extending the definition may reduce premiums for small employers by enlarging the risk pool to include employers with 51 to 100 employees. Keeping the definition to employers with 1 to 50 employees may be the right option in other states, but maybe not in California. The small group market is significant in California. Many of the economy’s most dynamic companies incubated as small employers in California. All of these issues should be part of the debate in California.

 

Questions?
Contact the small group experts at 800.696.4543 or info@claremontcompanies.com.

 

 

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