In a unanimous vote, the House passed legislation today that would rescind the Affordable Care Act’s expanded definition of a small employer. The bipartisan bill has had strong support from employers and benefit industry insiders who feared the expansion could lead to premium increases and jeopardize the ability for small and mid-sized businesses to compete in today’s market.
The benefit industry applauded the bill’s passage.
“The Big ‘I’ is pleased to see this legislation pass the House of Representatives with such strong bi-partisan backing,” says Robert Rusbuldt, Big “I’” president & CEO. “One analysis from the actuarial firm Oliver Wyman estimated that the effect of expanding the definition of the small employer would result in nearly two-thirds of workers in small to mid-size firms receiving premium increases in 2016. H.R. 1624 would protect small to mid-sized employers and employees at those firms from seeing significant premium increases that are anticipated due to the Affordable Care Act.”
The ACA proposes that effective Jan. 1, 2016, the definition of a small group employer increases from 1-50 employees to 1-100 employees. The Protecting Affordable Coverage for Employees Act (PACE) would maintain the current definition of a small group market as 1-50 employees and give states the flexibility to expand the group size if they feel the market conditions in their state necessitate the change.
The PACE Act, “will help preserve existing health insurance options for medium-sized businesses, preventing significant increases in premiums, and reducing the compliance burden for small businesses, particularly those that purchase fully insured coverage,” says Les McPhearson, CEO of United Benefit Advisors.
The expansion is intended to make insurance more affordable for the smallest employers by expanding the risk pool to include larger companies. It also aims to increase the number of participants in the ACA’s Small Business Health Options Program, also known as the SHOP exchanges.
The expanded definition would, among other things, mean the ACA’s small group rating limitations would apply to more employers, many that were previously considered large employers. Large employer rates are set using various factors such as claims history, industry and location. In the small group market, carriers can set rates based only on age, family size, geography, and, in most states, tobacco use.
Mid-size employer duress
“The expansion will prevent mid-size employers from keeping the plans they currently have as they will have to select a new plan offered in the small group market,” says Janet Trautwein, CEO of the National Association of Health Underwriters. “Mid-size employers will be subjected to the modified community rating rules…[and] the mid-size employers will not be able to receive discounts based on their actual claims experience.”
She adds, “These employers will now have to comply with the actuarial value, cost-sharing and essential health benefit requirements, which could add an additional 3% to 5% to premiums.”
Combined with other rating rule changes, premiums could increase by up to 8% in 2016, she predicts, and reiterates that recent analysis finds an alarming two-thirds of groups in the 51-100 market would receive premium increases of an average of 18% in 2016.
“If the pending small-group expansion goes forward as planned, many employers could lose the coverage that they have had in the past because insurers do not participate in the small-group market in their state,” McPhearson agrees.
Other employers will choose to drop coverage and send employees to the marketplaces and others will choose to self-insure, McPhearson says.
The PACE bill’s passage “will help to ensure that Americans will continue to receive their employer-sponsored insurance, as 90% of employers in the 50-99 market already provide insurance,” he adds.