President Signs PACE ACT Changing Small Group Market Definition

On October 7, 2015 President Obama signed the Protecting Affordable Coverage for Employees (PACE) Act that amends the Affordable Care Act (ACA) definition of a “small employer” for the purpose of purchasing health insurance coverage.

Prior to the signing of this amendment and beginning January 1, 2016, every state was required to expand the definition of the small group market to include employers with up to 100 employees. Prior to January 1, 2016 states had the flexibility to maintain the definition of a small employer to those with up to 50 employees and most states continued to do so.

The PACE Act repeals the mandatory expansion of the small group market to employers with up to 100 employees and reverts to the prior definition of up to 50 employees, although the states maintain flexibility to define the small market as up to 100 employees if they wish.

Under the ACA, health insurance offered in the small group market must meet strict underwriting requirements and cover all essential health benefits- conditions that do not apply in the large group market. Concerns about steep price increases and loss of benefit design flexibility from many businesses with 51 – 100 employees who would be re-classified as a “small employer” prompted this bi-partisan amendment to the law.

What Happens Now?

Numerous questions surround the passage of this amendment to the ACA given the fact that the change has happened so late in 2015. Insurance carriers have already filed their small group 2016 plan rates assuming the expansion of this market space and many employers impacted by their re-classification have already secured coverage or are finalizing plans for 2016 coverage. Here are some questions that hopefully will be addressed in the near future:

• When and how will each state determine the size of the small group market (50 or 100 employees)? Will this require state legislation or some other form of action to address this issue? Currently under Florida legislation, a small group is defined as 1-50 but it has not been determined yet if Florida will continue to use this definition or if they will transition to a 1-100 definition.
• Will insurance carriers be able to modify small group rates as this market space may no longer expand?
• Will employers with 51 -100 employees be able to shop for other coverage in the large group market? Will they be able to do this for January 1, 2016 or will it be possible to modify coverage at some time during 2016?
• Will the state allow some form of transition?
• Will each state have the flexibility to determine the methodology for calculating employer size?
• Will the state be able to revert back to the prior method such as considering only “eligible” employees or will they need to use an ACA counting method to determine employer size?

Employers who are impacted by this ACA amendment should monitor the situation and determine what may be the best course of action for your employees.