Last fall, Pres­i­dent Barack Oba­ma signed the Pro­tect­ing Afford­able Cov­er­age for Employ­ees Act (PACE), which pre­served the his­tor­i­cal def­i­n­i­tion of small employ­er to mean an employ­er that employs 1 to 50 employ­ees. Pri­or to this new­ly signed leg­is­la­tion, the Patient Pro­tec­tion and Afford­able Care Act (ACA) was set to expand the def­i­n­i­tion of a small employ­er to include com­pa­nies with 51 to 100 employ­ees (mid-size seg­ment) begin­ning Jan­u­ary 1, 2016.

If not for PACE, the mid-size seg­ment would have become sub­ject to the ACA pro­vi­sions that impact small employ­ers. Includ­ed in these pro­vi­sions is a man­date that requires cov­er­age for essen­tial health ben­e­fits (not to be con­fused with min­i­mum essen­tial cov­er­age, which the ACA requires of applic­a­ble large employ­ers) and a require­ment that small group plans pro­vide cov­er­age lev­els that equate to spe­cif­ic actu­ar­i­al val­ues. The orig­i­nal intent of expand­ing the def­i­n­i­tion of small group plans was to low­er pre­mi­um costs and to increase man­dat­ed ben­e­fits to a larg­er por­tion of the population.

The low­er cost the­o­ry was based on the premise that broad­en­ing the risk pool of cov­ered indi­vid­u­als with­in the small group mar­ket would spread the costs over a larg­er pop­u­la­tion, there­by reduc­ing pre­mi­ums to all. How­ev­er, after fur­ther scruti­ny and com­ments, there was con­cern that the expand­ed def­i­n­i­tion would actu­al­ly increase pre­mi­um costs to the mid-size seg­ment because they would now be sub­ject to com­mu­ni­ty rat­ing insur­ance stan­dards. This shift to small group plans might also encour­age mid-size groups to leave the ful­ly-insured mar­ket by self-insur­ing – a move that could actu­al­ly negate the intend­ed ben­e­fits of the expand­ed definition.

Anoth­er issue with the ACA’s expand­ed def­i­n­i­tion of small group plans was that it would have result­ed in a dou­ble stan­dard for the mid-size seg­ment. Not only would they be sub­ject to the small group cov­er­age require­ments, but they would also be sub­ject to the large employ­er man­date because they would meet the ACA’s def­i­n­i­tion of an applic­a­ble large employer.

Note: Although this bill pre­serves the tra­di­tion­al def­i­n­i­tion of a small employ­er, it does allow states to expand the def­i­n­i­tion to include orga­ni­za­tions with 51 to 100 employ­ees, if so desired.

By Vic­ki Randall
Orig­i­nal­ly pub­lished by