Some Small Employers Remain in Limbo on Small-Group Definition

Although President Obama signed the Protecting Affordable Coverage for Employees (PACE) Act this week, many employers the legislation is intended to protect remain in limbo. The PACE Act nullifies the Affordable Care Act’s originally scheduled 2016 expansion of the threshold of “small group” for health insurance purposes from employers with 50 or fewer employees and full-time equivalents, to those with 100 or less.

The PACE Act’s enactment means that employers in that 51-100 size bracket that buy health coverage will not be subject to the small-group market rules. Under the ACA, small-group plans are subject to the requirement to provide the 10 essential health benefits and have fewer underwriting criteria to use, making coverage significantly less costly for some groups (particularly those with healthy workforces), and more so for others.

The only underwriting criteria insurers covering small-group employers are now permitted to use are age, geography and the number of smokers in the covered population. Criteria they are no longer permitted to use include gender and claims experience.

“This legislation makes a helpful change to the law for small and mid-size businesses by limiting potential premium increases and letting the states determine what’s best for their market,” said Sen. Jeanne Shaheen (D-N.H.), one of the bill’s cosponsors. “I’m very pleased that, in this instance, Congress rose above the partisan squabbling to make this improvement to the health care reform bill and I hope it’s a good omen for further cooperation.”

Several states, including Colorado, Connecticut, Washington, Oregon, Virginia, Vermont, Maryland, Nevada and the District of Columbia, had passed laws redefining “small group” beginning in 2016 according to the original ACA threshold of 100 employees, to be consistent with the ACA.

Although the PACE Act’s enactment now maintains the level at 50, those states will need to pass new laws to bring their threshold for the small-group definition back down to 50. However, many states’ legislatures are only in session several months a year, and for many new sessions won’t begin until next year.

That means that insured employers in those states with 51-100 employees technically may fall into that small-group classification until their state legislatures take advantage of the authority given to them under the PACE Act to adopt the lower threshold.

Insurance commissioners in some states might be able to temporarily suspend the raising of the size threshold if legislative action to make the change permanent appears imminent, but that is not entirely clear and will vary by state.

North Carolina’s legislature already passed a law that would undo its law that would have raised the small-group threshold, and the measure is awaiting the governor’s signature.

Employers with 51-100 employees in states that had not enacted any legislation on the topic will automatically benefit from the PACE Act’s un-doing of the original 2016 ACA 100-and-under employee standard.

Self-insured employers were never impacted by this issue.

There is no guarantee that all states will choose to keep the small-group ceiling at 50 employees, even though that is all that ACA will now require. For example, Washington State’s insurance commissioner, in testimony given at Congressional hearings on the PACE Act, said he would prefer using the 100-employee to expand the small-group risk pool.

However, state legislatures, not insurance commissioners, have the last say on the matter.

“The public perception on the Affordable Care Act has been that political polarization is insurmountable. However, bipartisan amendments have been made to the law over the past five-and-a-half years,” said Katherine Hayes, health policy director at the Bipartisan Policy Center. “Between now and 2017, we think it is unlikely there will be further significant changes to the ACA. Instead, we expect the focus to now shift to the agencies to provide regulatory guidance, especially around waivers.”

David French, senior vice president of government relations for the National Retail Federation said his organization hopes “that the PACE Act will help open the legislative gates to additional ACA fixes such as restoring the 40-hour workweek, repealing the ‘Cadillac Tax’ and correcting the law’s dysfunctional reporting requirements.”

Several employer groups, including the Society for Human Resource Management and the U.S. Chamber of Commerce, applauded the introduction of the legislation earlier this year, saying “it is in the best interest of employers and their employees that states determine the definition of their small group market.”

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