At the end of September, the house unanimously voted to pass H.R. 1624, the Protecting Affordable Coverage for Employees Act (PACE), to rescind the Affordable Care Act’s expanded definition of small employers. The legislation has the support of employers and the benefits industry, easing fears that expansion would cause premium increases and be a problem for small and mid-sized business competition. President Obama signed the PACE Act on October 7, 2015.
The ACA was set to change the definition of a small group employer on January 1, 2016 to 1-100 employees from its current 1-50 employees. PACE maintains the current definition and gives states flexibility to expand the group size in their states if market conditions warrant.
Benefits Industry Happy
The Independent Insurance Agents & Brokers of America, Inc. president and CEO Robert Rusbuldt announced that the Big “I” is happy with the passage of the bill. Rusbuldt quoted actuarial analysis that estimated that expanding the definition of small employer would increase premiums for workers in almost two-thirds of small and mid-size firms next year. Other insurance industry players who are just as happy as the Big “I” include United Benefit Advisors CEO Les McPhearson, who says preventing significant premium increases and reducing the compliance burden for small businesses is important.
What Would the Expansion Have Done?
The expansion would have inflated the risk pool to include larger companies and increased the number of participants in the SHOP exchanges, the ACA’s Small Business Options Program. The expanded definition would also have meant that ACA small group rating limitations would apply to more employers, many that were required to meet large employer compliance and whose rates are set with factors including claims history, industry and location.
Going to the small group market, rates would have been based only on family size, age, geography, and in most places, tobacco use. This would effectively have prevented mid-size employers from keeping current plans and would have required them to select new plans in the small group market, preventing large group discounts based on actual claims experience. National Association of Health Underwriters CEO Janet Trautwein predicted that alone could have added an additional three to five percent on top of current premiums, but with other rating rule changes, the increase could have been as high as eight percent in 2016.
Mid-sized Employer Duress
The planned small-group expansion may have caused many employers to lose coverage because insurers don’t participate in the small-group market in their state. McPhearson says that the PACE Act ensures that American workers will get to keep their current employer-sponsored insurance because 90 percent of employers in the 50-99 market provide insurance to their employees.
Experts like Alan Katz remind employers that the new law doesn’t guarantee that the definition of small employer will not change, because it allows states to set their own definition. Katz recommends checking with your state Association of Health Underwriters chapter to find out what your state is doing.
Several states including California had already enacted legislation, based on the ACA expansion, to move the definition to 100 employees. The future is unclear for these states. In California, the Legislature has recessed for a special session until January, while many employers are already in the process of renewing plans for December 1st under the expanded definition.