On October 8, 2015, President Obama signed into law H.R. 1624, the “Protecting Affordable Coverage for Employees Act of 2015,” otherwise known as the PACE Act. The PACE Act makes relatively minor statutory amendments to Section 1304(b) of the Patient Protection and Affordable Care Act (ACA), and Section 2791(e) of the Public Health Service Act, each of which define “large” and “small” employers for determining how such employers must provide health coverage for their employees.
Prior to passage of the ACA, a “small employer” was generally defined as an employer of 2 to 50 people; in 2010, the ACA expanded the definition of a “small employer” to include an employer of between 2 and 100 employees. States were afforded the option to continue to define “small employer” to those employers of 50 or fewer people, but only through 2016.
As employers across the country considere their health coverage options for next year, those in the range of 51 to 100 employees have recently been faced with the impact of being required to purchase health coverage in the small employer market, where coverage plans must fit within the ACA’s actuarial value levels, known as the “metallic” designations, i.e., bronze, silver, gold and platinum. Small employer plans must offer “Essential Health Benefits” and are limited in what underwriting criteria may be used to price coverage. These requirements generally have made small employer coverage purchased either through the Small Business Health Options Program (SHOP) or the private market more expensive on a per-covered person basis than large employer coverage. The influx of employers in the 51-100 employee range was anticipated to further exacerbate premium increases in the small employer coverage market.
The PACE Act essentially excises the expansion of the definition of “small employer” from the ACA, allowing states the option to decide the small employer market within their jurisdiction for employers of up to 100 individuals. It remains to be seen whether any states will elect to retain the ACA’s original expansion of the “small employer” definition. Prior to passage of the PACE Act, the majority of states (including New Jersey) had exercised their discretion to delay the expansion of the definition of “small employer” through 2016, although a minority (including New York, seeN.Y. Ins. Law 3231(a)(1) and N.Y. Ins. Law 4317(a)(1)) had given effect to the expansion.
Constraining the definition of “small employer” may be a double-edged sword. While the PACE Actcan relieve employers of 51-100 individuals from the increased cost of purchasing coverage in the small employer market, it may also impact those employers’ decision to provide health coverage to employees in the first place. Under the ACA, “small employers” are not required to provide coverage to employees, while “large employers” are subject to the ACA’s coverage mandate. The PACE Act effectively leaves the decision to the states as to which set of requirements to impose on employers – placing 51-100 employee firms in the position of either purchasing expensive coverage or none at all, or mandating the purchase of more reasonably priced large employer group coverage.