This is the ninety-fourth issue in our series of alerts for employers on selected topics in health care reform. (Click here to access our general summary of health care reform and other issues in this series). This series of Health Care Reform Management Alerts is designed to provide an in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.

On October 8, President Obama signed a bipartisan bill into law -- the Protecting Affordable Coverage for Employees Act or PACE Act. The PACE Act amends the definition of “small employer” for purposes of the non-tax portions of the Affordable Care ACT (ACA). Under the law, states have the option to continue defining “small employer” as those employers with fewer than 50 employees in 2016.  Absent the PACE Act, the definition of “small employer” would increase for plan years beginning on or after January 1, 2016 to include employers with 100 or fewer employees.  Notably, several states had already acted to redefine small employer as those with 100 or fewer employees, and it appears that in the absence of additional legislative action in those state actions will still take effect.  

The PACE Act impacts the portions of the ACA that apply to the small group insurance market.  Small employers must purchase their group health plan coverage from the small group insurance market, which is subject to rigid community rating rules for determining premiums as well as coverage requirements that require plans to provide coverage for all essential health benefits.  

The PACE Act will mean that mid-sized employers (between 51 and 100) are not allowed to participate in the Small Business Health Options Program (SHOP).  But it will also allow these mid-sized employers to seek group health plan coverage from the private insurance market, which is not constrained by the community rating rules and the same coverage requirements. It is believed by the bi-partisan supporters of the legislation that this will help in holding down premium increases.