October 23, 2015 – More on Small Insurance Markets
As we recently communicated here, the “Protecting Affordable Coverage for Employees Act” or “PACE Act” amended the definition of small employer for purposes of the group insurance rules. As a result of this legislation, a fifty (50) employee threshold now generally applies both for determining whether an employer is an “applicable large employer” (ALE) under Section 4980H of the Internal Revenue Code (i.e., the employer shared responsibility penalty) and for determining whether a group insurance policy issued to the employer will be subject to the small insurance market rules or the large insurance market rules.
Despite the use of a common threshold, a number of issues still exist regarding employer size:
- The PACE Act gives states the discretion to increase the threshold size (up to 100) for the state’s definition of small employer in the small group insurance market. If a state takes such action, many employers that employ between 50 and 99 employees will be eligible only for small market coverage despite the fact they are ALEs and, therefore, subject to the employer shared responsibility penalties.
Note: CMS released FAQs this week in which it indicated that a State may elect to extend the definition of small employer by any action that is legally binding on the health insurance issuers in that State. This guidance from CMS suggests legislative action would not be required by a State to extend the definition of small employer if regulatory action to do so would be binding on insurance carriers.
- Neither the PACE Act nor any other guidance from the federal regulators indicates the appropriate method for counting employees under the insurance market rules. As a result, a State’s insurance department and the insurance carriers in that State might use a method of counting employees under the insurance market rules that is different from the counting method required under Section 4980H. In that case, an employer might be an ALE under Section 4980H but be a small employer for purposes of the insurance market rules, or an employer might be a non-ALE under Section 4980H but a large employer for purposes of the insurance market rules.
Example: On September 29, 2015, the Minnesota Department of Commerce (DOC) issued a bulletin to the insurance carriers operating in the State that requires carriers to count employees for purposes of the insurance market rules using one of two methods. [Although the bulletin was issued prior to passage of the PACE Act, we are not aware that the DOC intends to rescind the bulletin in light of the PACE Act.]
- One method a carrier may use is the counting method applicable for purposes of SHOP coverage (i.e., group coverage issued to an employer through an insurance exchange). The SHOP regulations specifically incorporate the counting method applicable under Section 4980H, which generally counts all full-time employees plus the full-time equivalence of other employees as specified in the Section 4980H regulations.
- The other method a carrier may use is the method found in the Minnesota small group statute (Minn. Stat. Section 62L.02), specifically the definition of “employee” contained in that statute. Under the statute, “employee” includes (1) individuals (including sole proprietors and partners) employed for at least 20 hours per week other than individuals who work on a temporary, seasonal, or substitute basis), plus (2) retirees and disabled former employees who are required to be covered under the state law that requires continuation coverage for employees who become totally disabled while employed.
Depending on the authorized counting method used by an insurance carrier, results could differ significantly. In addition, the determination of an employer’s status could differ from one insurance carrier to the next. Employers should contact their brokers and/or carriers to determine which of the approved methods is being applied to their situation and to ensure the counting is being done appropriately.
- Regardless of its status for purposes of the insurance market rules, any employer that is an ALE in 2015 must comply with the Section 6056 reporting requirements for 2015, which is accomplished by preparing, distributing, and filing Forms 1094-C and 1095-C. Such an employer must comply with the reporting requirements even if it was not subject to employer shared responsibility penalties in 2015 due to the transition relief provided for employers with between 50 and 99 employees.
Please contact us if you have any questions and/or you would like our assistance. We are currently working with a number of employers to determine their status for various purposes, including small group insurance eligibility and the application of the ACA employer shared responsibility and reporting requirements.
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