Earlier this month, President Obama signed the bipartisan PACE Act to stop the Affordable Care Act (ACA) from changing rules that apply to employers with between 51 and 99 employees. This is important both as a rare example of bipartisan cooperation to reform Obamacare, as well as a preservation of the status quo for employers in this mid-market segment. The Act has been praised by insurance brokers and business groups, but has also frustrated the plans of many mid-market employers.
Generally speaking, the ACA has two sets of rules for employers that apply based upon whether they are considered a small employer or a large employer. Small employers are not required to offer health insurance coverage to their employees. However, insurance companies are required to offer plans to small employers which comply with a number of ACA requirements, including community-based rates and coverage of ten essential health benefits. In addition, small employers are able to offer employees a choice of plans on healthcare.gov under the Small Business Health Options Program (SHOP), and may receive a tax credit for doing so.
The rules that apply to large employers are essentially the opposite of those that apply to small employers. An employer is considered large for ACA purposes if it employs an average of at least 50 full-time and full-time equivalent employees during the year. These employers are required to offer affordable coverage to employees that provides minimum value or pay a penalty. On the other hand, applicable large employers are not subject to community rating and have more flexibility to decide what benefits will be covered by their plan, and how. Large employers are also not eligible to participate in the SHOP exchange or receive the SHOP tax credit.
In most states, including Wisconsin, a small employer has been defined as an employer that employed an average of between 2 and 50 employees on business days during the prior calendar year. Any employer with more than 50 employees was considered a large employer.
The ACA called for expanding the definition of small employer to include employers with up to 100 employees in all states as of January 1, 2016. This change would put employers with 51-99 employees in the awkward position of being subject to both the extra regulation of the small group market, as well as the employer mandate that applies only to applicable large employers. Some states, including California, Colorado, New York, and Virginia, changed their state’s laws to match the new ACA definition, but most did not.
Businesses, insurance companies, and benefits professionals who anticipated this change have been busy working this year to prepare mid-market employers for the impending change. ACA transition relief provisions allowed employers in this segment to early renew their plans in late 2015 to obtain short term relief from the higher rates that most would receive under small group community rating. Other groups who have been paying higher rates due to adverse claims experience planned to move to a small group product as of January 1 to obtain rate relief as soon as possible. Some planned to drop coverage and pay the employer mandate penalty, or switch to a self-funded health plan. And many employers whose employees have diverse needs were eagerly anticipating the release of SHOP rates in November so they could provide their employees with a range of plan options from different insurance companies.
Now that the PACE Act has been signed into law, mid-market employers who planned their 2016 health benefits strategy around the upcoming expansion of the small group market are going back to the drawing board. Those who were satisfied with their broker’s 2015 transition relief offer will likely take no further action. Those who received community-rated small group offers for 2016 from will likely see those revoked by their insurance company and will need to investigate underwritten options on a very short time frame. Mid-market employers who planned to offer coverage on the SHOP exchange will also need to quickly decide whether to offer underwritten coverage from a single insurance company or pay a penalty. And employers in states that redefined small group to match the anticipated federal definition need to stay tuned to find out if their state will change back to the traditional definition, or opt to use the 1-100 definition.
No matter which category your business may be in, this important and under-reported change underscores the importance of partnering with a health benefits professional who understands how ongoing legislative and regulatory changes will affect your business.