With 2016 just around the corner, employers were about to get another regulatory curveball thrown their way. Under the Affordable Care Act (ACA), the definition of “small employer” was set to change to include groups of up to 100 employees, effective January 1, 2016.

What would the reclassification have meant for mid-market employers?

  • Employers with 51-100 employees would have moved from the mid-market to the small group market. That means some of them might not have been able to continue with their existing health plans because their insurer may not participate in the small group market.
  • Mid-market employers also would have moved from composite rates for health insurance to the new ACA member rating. The National Association of Health Underwriters (NAHU) projected that two-thirds of plan beneficiaries in the 51-100 employee groups would face premium increases averaging 18 percent in 2016.
  • These employers would also face more restrictive rating rules and would no longer receive discounts based on their actual claims experience.

In short, the reclassification could have wreaked havoc on insurance premiums for employers in the 51 to 100 employee size group, and possibly for small groups as well.

So with plenty of pressure from advocacy groups such as the U.S. Chamber of Commerce and the 50-100 Coalition, legislation was introduced to head off the reclassification.

Congress and the President set a new PACE.

Now it’s official. The Protecting Affordable Coverage for Employees (PACE) Act was passed by the House on September 28, 2015, and by the Senate on October 2, 2015. President Obama has since signed it into law.

The PACE Act repeals the mandated small-group expansion from groups of up to 50 employees to groups of up to 100 employees, and gives states the option of increasing the size of “small employers” to 100 employees if they choose to do so. It gives states the flexibility to determine the size of their own small-group market instead of being forced into the national standard.

It’s a huge change. When it comes to insurance regulations, small employers are treated very differently under the ACA than large insurers. For example, insurers covering small employers have to cover the ten essential health benefits (EHB) and can only offer plans that fit into the actuarial value levels (bronze, silver, gold, and platinum) defined by the ACA. Insurers are only allowed to consider age, geographic location, family composition, and tobacco use in setting rates for small groups. But large group plans aren’t bound by the same requirements.

What’s next for employers?

There will no doubt be some wrinkles to iron out with the new law. Several states have already passed legislation mirroring the ACA and expanding the definition of small group to groups of up to 100 effective January 1, 2016. And most insurance carriers have filed their 2016 rates, assuming the ACA requirement would go into effect, and it’s probably too late in the year for them to refile.

Bottom line: it’s up to the states now.

Most employers and carriers can see that for businesses with 51-100 employees, changing from mid-market to small group is bringing huge increases in premiums, so the same advocacy groups that supported the PACE Act will now be concentrating their efforts on getting their states to keep the traditional small group definition.

BeaconPath will be advocating for California to allow the small group market to remain at 1-50 and not expand to 100. We feel this is vital for mid-market employers in the 51-100 market.

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