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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.

By Vicki Randall
Originally published by www.ubabenefits.com

CMS Provides Clarity on PACE Act Implications for States | Ohio Employee Health Benefits

Categories: PACE
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By Danielle Capilla, Chief Compliance Officer at United Benefit Advisors

The Providing Affordable Coverage for Employees (PACE) Act amended the Patient Protection and Affordable Care Act (ACA) and redefined small employers as those with 50 or fewer employees; it also gives states the option to Small business employeesexpand the definition to include employers with up to 100 employees (or, practically speaking, those with 51 to 100 employees, also called “mid-size employers”). Prior to the ACA, all states defined small employers as those with 1 to 50 or 2 to 50 employees; however, many have passed legislation redefining the group size up to 100 employees beginning in 2016. States are now in the process of determining what they define as “small employer.”

The Centers for Medicare & Medicaid Services (CMS), in response to the PACE Act, issued an FAQ on the impact of the PACE Act on small group expansion. CMS clarified that states that choose to expand the definition up to 100 employees beginning January 1, 2016, were required to notify CMS of the decision by October 1, 2015. States with other effective dates should notify CMS of the decisions as soon as is practical. A state’s definition is legally binding on health insurance issuers.

Regarding rate filings by the carriers, the FAQ stated that states with a state-based Small Business Health Options Program (SHOP) that do not rely on the federal platform have the discretion, consistent with state law and regulations, to allow resubmission of small group coverage rate filings, including changes to rates for the first quarter of 2016. Technical constraints will prohibit carriers to change rate filings for the first quarter in states that utilize a federally-facilitated (FF) SHOP or a state-based SHOP using the federal platform. Rates may be adjusted effective April 1, 2016.

On November 1, 2015, the beginning of open enrollment for 2016 coverage, all FF-SHOP eligibility screens on HealthCare.gov will ask employers if they have 1 to 50 employees for purposes of SHOP eligibility. CMS is working to update these screens as quickly as possible in applicable states.

The PACE Act will not affect counting methodologies used by SHOPs in relation to employer shared responsibility, medical loss ratio (MLR) calculations, risk adjustment or risk corridors. The definition of a small employer for purposes of MLR, risk corridors, and risk adjustment will follow the state definition. Reporting for those programs during a transition in the state definition of small employer in the applicable reporting year should align with the policy issued to the employer, regardless of actual employer size.

 

For more information on the PACE Act, download UBA’s ACA Advisor, “PACE Act Passes House, Senate.”

For comprehensive benchmarking information on health care costs among employers with 51 to 100 employees—including the rate outlook now that PACE has passed and community rating may be avoided for these groups—download UBA’s 2015 Health Plan Survey Executive Summary.

 

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