Last fall, President Barack Obama signed the Protecting Affordable Coverage for Employees Act (PACE), which preserved the historical definition of small employer to mean an employer that employs 1 to 50 employees. Prior to this newly signed legislation, the Patient Protection and Affordable Care Act (ACA) was set to expand the definition of a small employer to include companies with 51 to 100 employees (mid-size segment) beginning January 1, 2016.
If not for PACE, the mid-size segment would have become subject to the ACA provisions that impact small employers. Included in these provisions is a mandate that requires coverage for essential health benefits (not to be confused with minimum essential coverage, which the ACA requires of applicable large employers) and a requirement that small group plans provide coverage levels that equate to specific actuarial values. The original intent of expanding the definition of small group plans was to lower premium costs and to increase mandated benefits to a larger portion of the population.
The lower cost theory was based on the premise that broadening the risk pool of covered individuals within the small group market would spread the costs over a larger population, thereby reducing premiums to all. However, after further scrutiny and comments, there was concern that the expanded definition would actually increase premium costs to the mid-size segment because they would now be subject to community rating insurance standards. This shift to small group plans might also encourage mid-size groups to leave the fully-insured market by self-insuring – a move that could actually negate the intended benefits of the expanded definition.
Another issue with the ACA’s expanded definition of small group plans was that it would have resulted in a double standard for the mid-size segment. Not only would they be subject to the small group coverage requirements, but they would also be subject to the large employer mandate because they would meet the ACA’s definition of an applicable large employer.
Note: Although this bill preserves the traditional definition of a small employer, it does allow states to expand the definition to include organizations with 51 to 100 employees, if so desired.