ACA Small Group Market Expansion Repealed

Last week, President Obama signed the Protecting Affordable Coverage for Employees (PACE) Act into law. The PACE Act repeals the Affordable Care Act (ACA) requirement that the small group market in every state be expanded to include businesses with 51-100 employees. This new law does not affect the definition of an applicable large employer (ALE) for purposes of the ACA’s employer shared responsibility rules, which applies to employers that employ, on average, 50 or more full-time employees (including full-time equivalent employees) in the prior calendar year.

Most states have historically defined “small employers” as those with 50 or fewer employees for purposes of defining their small group health insurance market. Effective Jan. 1, 2016, the ACA would have expanded the definition of a “small employer” to include those that employed an average of between one and 100 employees.

The PACE Act eliminates the ACA’s new definition and, instead, gives states the option of expanding their small group markets to include businesses with up to 100 employees.

Impact on Employers

The expansion of the small group market was expected to have a significant effect on mid-size 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 was expected to increase premiums costs for employers and employees and reduce flexibility in plan design due to added small group market requirements.

Some states have already amended their state laws to adopt the expanded small group market definition and will now have to take action to undo those changes.  Most states are already taking advantage of a transition rule provided by the Department of Health and Human Services (HHS). HHS has said that it will not enforce small group market regulations for mid-size 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 to the small group market. The PACE Act makes this relief permanent for all employers.