Executive Summary:   On October 7, 2015, the Protecting Affordable Coverage for Employees Act ("PACE Act") was enacted, and on October 19, 2015, the Department of Health and Human Services released FAQs providing further guidance on the Act's application to states. The PACE Act gives states the option of continuing to define "small group" for purposes of the ACA market reforms as those with up to 50 employees instead of mandating the expansion of that definition to those with up to 100 employees as originally required by the ACA. This means that in states that choose to continue to define small group as up to 50 employees, mid-sized employers will be able to avoid the potential increase in premiums that could result from being included in the small group market. Importantly, the PACE Act does not affect definitions of large and small employer for purposes of the employer mandate.  

The PACE Act amends section 1304(b) of the Affordable Care Act and section 2791(e) of the Public Health Service Act to revise the definition of small employer for purposes of the market reforms under Title I of the Affordable Care Act and Title XXVII of the Public Health Service Act.  

Importantly, the PACE Act does not affect definitions of large and small employer for purposes of the employer mandate.

Instead, the PACE Act affects the definition of small employer for purposes of group market reforms, which require small group policies to meet certain requirements.  For instance, small group plans must provide ten specified essential health benefits (e.g., ambulatory patient services, emergency services, hospitalization, etc.), and comply with certain rating limitations, among other things.  In addition, the definition also affects an employer's eligibility for participation in the small business exchanges ("SHOP").

Without the PACE Act, starting January 1, 2016, states would have been required to expand state-based definitions of small group from 1-50 to 1-100.  Now, states have the option to maintain a definition of small group as 1-50 or to expand the definition as 1-100.

States may allow their insurers to modify their rate filings for 2016 under the new definition of small group. Due to the timing of the legislation, states that use the federally facilitated SHOP platform will not be able to adjust their rates until the second quarter of 2016.