CMS Provides FAQ About New Law Allowing States To Keep Original ACA Small-Employer Definition

Implementing Health Reform. On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act. The PACE Act amends the definition of “small employer” in the Affordable Care Act (ACA) so that it would continue to apply to employers with one to 50 employees, rather than changing to one to 100 employees as of 2016 as provided in the original ACA; however, the new legislation also allows states to opt for the one-to-100 employee definition of small employer if they choose.

On October 19, 2015, the Centers for Medicare and Medicaid Services (CMS) released a series of frequently asked questions explaining how it will implement the PACE Act. States may elect to extend the definition of small employer to cover employers with up to 100 employees by any means that is legally binding under state law, as long as the definition applies to all insurers, including those in the Small Business Health Options Program (SHOP) program. States that elect to expand the definition as of January 1, 2016 are requested to notify CMS by October 30, 2015.

States may allow their insurers to modify their rate filings for 2016 considering the change in definition. Because of technical limitations, however, states that use the federally facilitated SHOP or FF-SHOP platform will not be able to adjust their rates until the second quarter (April 1) of 2016.

Requirements regarding employee counting methodologies for the FF-SHOPs, State-based SHOPs, employer mandate, medical loss ratio (MLR), and risk adjustment and risk corridor programs are not changed by the PACE Act. The definition of small employer will follow the state definition for purposes of MLR, risk corridors, and risk adjustment programs, and it must be applied uniformly for all programs. If the definition of small employer changes during a reporting year, however, an employer’s experience should be reported with the group market in which the employer was placed at the time the policy was issued to the employer.

Because the PACE Act was enacted so soon before the November 1 date for the beginning of 2016 open enrollment, all FF-SHOP eligibility screens will ask employers if they have one to 50 employees for screening for SHOP eligibility. CMS will change the eligibility screens for specific state group-size definitions as quickly as possible, and in the future will be able to change the eligibility screen as soon as one month after being notified by a state that is changing its definition.