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ACA Small Group Definition Change Approved

pace-act.pngOn October 7, 2015, President Obama signed legislation called 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. 

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 group market as up to 100 employees. Most states, however, are sticking to the 50-employee definition. 

Under the ACA, health insurance offered by small employers must meet strict underwriting requirements and cover all of the essential health benefits defined by the Act. These conditions do not apply in the large group market, and the differences in the rules are understandably attractive to employers with 50 - 100 employees. 

Practical impact of the PACE ACT: how does it affect small employers?

The PACE Act has the greatest effect on employers with 51 - 100 employees. 

  • The enactment of the PACE Act means that employers with 51 - 100 employees will not be subject to the small group market rules.
  • Self-insured employers are not affected by the PACE Act.
  • Employers with fewer than 100 employees still face uncertainty. Insurance companies have already filed their small group plan rates for 2016 under the assumption that this market would expand under the previous ACA rules. Many employers affected by the re-classification under the PACE Act have already secured coverage or are in the final stage of planning for 2016 coverage. 
  • The PACE Act has generated more questions than answers. Will insurance carriers be able to modify small group rates in the now smaller market space? Will employers with 51 - 100 employees be able to shop for other coverage in the large group market, and if so, will they have enough time? Guidance published by the Centers for Medicare and Medicaid Services indicated that:

"States with a State-based SHOP that do not rely on the Federal platform have the discretion, consistent with state law and regulations, to allow resubmissions of small group coverage rate filings, including changes to rates for the first quarter of 2016. Due to technical constraints, issuers offering small group coverage in States with a Federally-facilitated SHOP, and in State-based SHOPs using the Federal platform, cannot make changes to rate filings fo rthe first quarter of 2016. Consistent with 45 CFR 156.80(d)(3)(iii), issuers offering small group coverage in any State may adjust rates for the second quarter, for rates effective April 1, 2016, to the extent otherwise allowed under applicable State and Federal law."

  • The new law gives states the option to extend the defintion of small employer to those who employ an average of at least 1 but not more than 100 employees on business days during the preceding calendar year. 
  • The definition of applicable large employer under the ACA's "pay or play" and information reporting provisions has not been changed. 

HNI will continue to update you on the effects of the PACE Act as more information comes to light.