The winds of change are blowing strong in Washington. In addition to last week’s news of growing Democratic support for the repeal of the Cadillac Tax, the House and Senate both passed legislation repealing the Affordable Care Act requirement that the small group market in every state be expanded from 1- 50 employees to include businesses with 51-100 employees. Yesterday the Protecting Affordable Coverage For Employees (PACE) Act was signed into law by President Obama.
This planned expansion of the small group market was expected to have a huge impact on mid-sized businesses. These businesses would have been required to buy coverage for employees in the small group market, which is more heavily regulated than the large group market. This change would have increased premium costs for employers and employees and reduced flexibility in plan design due to added small group market requirements.
Said another way, small groups (1 – 50) are underwritten on demographics alone (age, home zip code, family size and tobacco usage). These rates are filed with the State Department of Insurance on a quarterly basis based on the performance of the overall pooled risk. Small groups essentially don’t have the ability to negotiate for better rates, even if they are, for example, a young start-up full of remarkably healthy workers.
Conversely, employers with 51 – 100 employees been historically been underwritten on their own unique risk pool, thereby enabling knowledgeable and skilled benefit advisors to lobby carriers on their behalf for better rates.
After all, shouldn’t a mid-sized employer who has taken the time to institute an effective wellness program, or has used other tools to effectively manage the health of their workforce and the cost of their healthcare reap the rewards of those efforts? Congress now says they should.
To be clear, passage of the PACE Act does not eliminate the ACA’s employer mandate. Employees must still be provided “acceptable and affordable” coverage. The PACE Act merely impacts how these plans are underwritten.
Some states have already amended their state laws to adopt the expanded small group market definition. These states will have to take action to undo those changes. Most states are already taking advantage of a transition rule provided by the Dept. of Health and Human Services (HHS). HHS has said it will not enforce small group market regulations for mid-sized businesses if their policies are renewed by Oct. 1, 2016.
This means that many employers have already been able to delay moving from the large group market to the small group market. The PACE Act makes this relief permanent.