A win-win for businesses and bipartisanship as companies faced a premium increase of 18%
This week, President Obama signed HR 1624 – the Protecting Affordable Coverage for Employees (PACE) Act – that amends the Affordable Care Act (ACA) definition of a “small employer” for the purpose of purchasing health insurance coverage. The PACE Act repeals the mandatory expansion of the small group market to employers with up to 100 employees and reverts back to the prior definition of up to 50 employees[i]…although states still maintain the option to redefine the small market in order to cover businesses with up to 100 employees if they feel the conditions in their state necessitate the change.
This change is important; small employers are treated very differently than large insurers for purposes of insurance regulation under the ACA. Insurers covering small employers must, for example, cover the ten essential health benefits and can only offer plans that fit into the actuarial value levels (platinum, gold, silver, and bronze) defined by the ACA. Large group plans are not bound by any of these requirements.
Most states have long defined a small group as consisting of 50 or fewer employees, which is how the term was originally defined by the Health Insurance Portability and Accountability Act (HIPAA). The drafters of the ACA had hoped that extending the definition to encompass groups as large as 100 would both reduce premiums for the under 50 groups and extend the small group protections of the ACA to a larger population. However, as 2016 approaches, it’s become increasingly clear that the change might do more harm than good. The definition change would have also subjected mid-size employers to both the employer mandate and the strict small group insurance components, a result that could appear unfair.
A recent analysis[ii] by the Congressional Budget Office (CBO) and the Joint Committee on Taxation estimated that most states would not expand the definition of small employers. As a result, they project that federal revenues will increase $400 million over the next decade. Thus meaning it’s one of the few potential amendments to the ACA that does not increase the deficit and require a “pay-for.”
There will be some tangles to work out for sure given the fact that the change occurred so late in 2015 (i.e. insurers have presumably filed their 2016 rates and likely cannot refile in most states), but given the rancor that surrounds anything related to the ACA in a sharply partisan and largely nonfunctional Congress, this is a remarkable occurrence worthy of note. With a total of 235 cosponsors, the measure represents an uncommon instance in which both parties rallied behind an effort to improve flexibility for states, avoid coverage disruptions, and avoid premium increases for employees in mid-size firms.
[i] Firms with 51-100 employees would not be able to offer coverage through a Small Business Health Options Program (SHOP) exchange.
[ii] “Estimate of H.R. 1624, the Protecting Affordable Coverage for Employees Act, as introduced,” September 2015