PACE Act Turns NAIFA’s Advocacy Spotlight to the States

As the NAIFA Blog noted last week, the Protecting Affordable Coverage for Employees (PACE) Act has been signed into law. The PACE Act modifies the Affordable Care Act so that “small employers” may remain defined as businesses with 50 or fewer employees. Under the ACA, beginning January 1, 2016, “small employer” would have been redefined as a business with 100 or fewer employees. However, the PACE Act still gives individual states the prerogative to redefine a “small employer” as one with 100 or fewer employees.

Sorting Through the Implications

So what does this mean for NAIFA members and their clients? To get there we need to follow Alice down the rabbit hole to join the mad tea party that is the ACA.
Businesses with 50 or fewer employees are small employers. Those with 51-100 employees are large employers, but before enactment of the PACE Act they were scheduled to be reclassified as small employers on January 1, 2016. Under the ACA, small-group coverage has more requirements and restrictions than large-group coverage. For example, small-group plans are required to cover “essential health benefits” that the large-group plans are not. Small groups also face greater restrictions on the criteria insurers can use to define risk when setting rates. However, businesses with 50 or fewer employees are exempt from the ACA employer mandate, so they do not need to comply with these stricter rules.
Clear as mud, right? The upshot is that businesses with 51 to 100 employees would have moved into the stricter “small employer” category, but would not have had the exemption that protects the smallest employers. It would have created a logically questionable situation in which the smallest employers were exempt from the ACA mandate, slightly larger employers faced the strictest requirements, and the largest employers faced less strict requirements.
The PACE Act potentially prevents that from happening, but it becomes a matter for each state to decide.
  Current Original Jan. 1, 2016, classification (under the ACA – now repealed by PACE Act) Jan. 1, 2016, classification under current law
1-50 employees Small Employers – Exempt from Mandate Small Employers – Exempt from Mandate Small Employers – Exempt from Mandate
51-100 employees Large Employers Small Employers Large Employers (though individual states may classify them as Small Employers)
101+ employees Large Employers Large Employers Large Employers

Looking to the States

If some states reclassify businesses with 51 to 100 employees as small employers, these companies would have less flexibility when it comes to offering benefits to their workers. Their premiums would likely go up, causing some of them to self-insure. That could destabilize the small-group market and cause additional premium increases for companies with fewer than 50 employees that choose to provide insurance for their workers despite the ACA exemption. There is also concern that companies could cut their full-time staff to fall below the 50-employee threshold and qualify for the exemption.
“NAIFA advocated strongly for the PACE Act, and we are pleased that it passed with bipartisan support and the president signed it into law,” said NAIFA President Jules Gaudreau. “But we are not out of the woods. We need to see what the states will do. We have shifted our advocacy to the state level to protect our members’ small business clients, who could see their options shrink and costs rise.”
Early indications are that a number of states, California and Washington appear to be two, may go ahead and reclassify companies with 51 to 100 employees in spite of the PACE Act. NAIFA urges members as well as all advisors and small businesses that may be affected to contact their state insurance commissioners and urge states not to expand the definition of “small employer.” The NAIFA Government Relations Team has provided a sample letter that NAIFA state associations may use in their advocacy on this issue.
A good source of additional information is this issue brief by the American Academy of Actuaries.
  • Posted October 16, 2015 IN

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