October 9, 2015 – ACA’s Small Group Market Definition Repealed

The Affordable Care Act (ACA) included a change to the definition of “small employer” that applies under the group insurance rules. Under the ACA, the threshold size of a “small employer” for purposes of the small group insurance market was to increase from 50 to 100 employees no later than January 1, 2016.

Congress has passed, and the President has signed, legislation that repeals this provision of the ACA effective immediately. Under the legislation, known as the “Protecting Affordable Coverage for Employees Act” or “PACE Act”, the definition of small employer for purposes of the group insurance rules will be “an employer who employed an average of at least 1 but not more than 50 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year.” However, the PACE Act also authorizes states to extend the definition of small employer to cover employers that employed an average of not more than 100 employees.

Note: Unless state law already includes an extension to 100 employees (e.g., California, Colorado, Maryland, New York, Virginia, and Vermont), it is unlikely a state could act quickly enough to make such an extension applicable to January 1, 2016, renewals.

The PACE Act is significant for mid-sized employers (i.e., employers with between 50 and 99 employees) for two reasons:

In many cases, mid-sized employers prefer the large group insurance rules. Becoming subject to the small group insurance rules, including rules regarding community rating, age-banded premiums, and essential health benefits, was not a desirable change for many mid-sized employers. As a result of the PACE Act, mid-sized employers will not experience those changes (unless and until applicable State law is amended to extend the definition of small employer).

Action Item: A mid-sized employer that has already received a 2016 quote for coverage in the small group market should contact the insurance carrier(s) to determine whether a new quote for coverage in the large group market will be provided.

The PACE Act provides a consistent definition of small employer between the group insurance rules and the employer shared responsibility penalty rules. An applicable large employer for purposes of the employer shared responsibility rules has always been an employer who employs an average of at least 50 full-time employees (including full-time equivalents). That definition was not scheduled to change in 2016. But for the PACE Act, in 2016 many mid-sized employers would have been applicable large employers under the employer shared responsibility rules but small employers under the group insurance rules. That dual-status was creating confusion and a number of potential problems. The PACE Act largely resolves those issues.

Please contact us if you have any questions and/or you would like our assistance.

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