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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.”
Staying in the large group market is significant for employers with 51 to 100 employees, because they would not be subject to the ACA’s market reforms that apply to the small group market. Plans in the small group market must cover the ten essential health benefits and meet specified actuarial values (60% – bronze, 70% – silver, 80% – gold, 90% – platinum). Premiums in the small group market are member-level rated based on age bands set by the Health and Human Services Default Standard Age Curve. Moreover, premiums are set using modified (or adjusted) community rating, which means premium variation can only be based on age, geographic rating region, family composition, and tobacco use (tobacco use does not apply in California). Finally, small group plans participate in the risk adjustment program and are part of a single risk pool.
The anticipated effect of extending the definition of small employers was that it would reduce premiums for small employers by enlarging the risk pool to include employers with 51 to 100 employees. It would also allow employers with 51 to 100 employees to offer coverage to their employees through the Small Business Health Options Program, or SHOP exchange, and extend the small group protections of the ACA to more employers. However, according to an issue brief by the American Academy of Actuaries, the more restrictive rating and benefit requirements for groups sized 51-100 could reduce benefit flexibility and increase premiums. (The American Academy of Actuaries did not quantify the increase in premiums in relation to the potential reduction in premiums for small employers due to a larger risk pool that includes employers with 51 to 100 employees.) Employers with 51 to 100 employees would also be subject to both the Large Employer Mandate and the small group market reforms, which is not only confusing, but it would also subject employers with 51 to 100 employees to the same mandate as employers with more than 100 employees yet they would have more restrictive health benefit options.
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. Stay tuned for updates.
Contact the small group experts at 800.696.4543 or email@example.com.