This bill was signed into law by President Obama on October 7, 2015. The bill was passed by the House on September 28 and by the Senate on October 1.
Beginning in January 2016, the definition of small employers will change from groups of up to 50 employees to include groups of up to 100 employees under the Patient Protection and Affordable Care Act (PPACA). Expanding the definition will adversely impact choice for medium-sized employers. Many employers will lose the coverage that they have had in the past because insurers do not participate in the small group market in their state, some will choose to drop coverage sending their employees to the marketplaces, some will choose to self-insure, while employers who keep their coverage will be faced with significantly higher premium costs, with an average premium increase of 18% in 2016.
Bipartisan, bicameral legislation has been introduced that would give states the option to define their small group size, rather than the one-size fits-all national standard definition. Senators Tim Scott (R-SC) and Jeanne Shaheen (D-NH) introduced S. 1099, and Representatives Brett Guthrie (R-KY-2) and Tony Cardenas (D-CA-29) introduced H.R. 1624, legislation that would replace the pending national standard for small group definition with an option for state discretion. On September 28, 2015, the House passed H.R. 1624 on a voice vote under the suspension calendar and on October 1, 2015 the Senate followed suit and passed the House bill. On October 7, President Obama signed the bill into law.
In every state, small employers are defined as either groups of 1-50 or 2-50 employees. However, beginning January 1, 2016, the definition of small employers will change from groups of up to 50 employees to include groups of up to 100 employees. This change is mandated as part of the Patient Protection and Affordable Care Act (PPACA). The law provides for states to implement the transition to 100-employees before 2016, yet not a single state has acted to do this. Because of the delays in the employer shared responsibility provision (employer mandate), this change to the definition of small employers will now be taking effect at the same time as the employer mandate, preventing any time for employers, insurers, and states to adjust to the changes. The combination of the new compliance requirements and the regulations for the new group size is expected to cause dramatic change to the insurance policies of these medium sized employers.
We are urging Congress to allow states to have greater flexibility in determining their own small group market instead of relying on a single national standard. Concurrently, we are urging the administration to delay the new definition of small groups so that employers and states have time to transition and adjust to the new compliance, market reforms, and regulations that will go into effect under the employer mandate. Because the employer mandate was effectively delayed by two years in its enforcement, there should similarly be a two-year delay in the implementation of the new definition of small employers. With small groups only having to comply with the employer mandate beginning in January 2016, instead of January 2014 as the statute originally required, the two year period for small groups to transition to the 100-employee definition should line-up with the new implementation timeline.
Groups participating in the Small Business Health Options Program (SHOP) were also supposed to have two years of experience and because that hasn’t been rolled out as originally planned, this gives a shorter window for businesses to transition to the new rules. Expanding the definition will also adversely impact choice for medium-sized employers. Many employers will lose the coverage that they have had in the past because insurers do not participate in the small group market in their state. As 90 percent of employers in the 50-99 market already provide insurance, the loss of their existing insurer will mean, at best, less choice and competition among insurers in that market segment, and at worst could mean that if their insurer is no longer offering coverage to their group due to the new market size definition, that some employers will choose to drop coverage if another affordable option is not available. Beneficiaries on these plans would also face increased premiums because of the new rating rules, Essential Health Benefits (EHBs), and minimum actuarial value and cost sharing requirements. It is estimated that two-thirds of plan beneficiaries in the 51-99 employee-groups will face premium increases by an average of 18 percent in 2016. Other changes to the plans could result in further premium increases, which may cause some employers to drop coverage or self-insure.
- Expanding the small group definition to 1-100 increases premiums for the vast majority of small employers, their employees and their families.
- 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.
- Mid-size employers will be subjected to the modified community rating rules, meaning that rating will be determined by age, geography, tobacco use, and family size. Additionally, the mid-size employers will not be able to receive discounts based on their actual claims experience. Combined, healthy mid-size employers can expect to see their premiums increase as part of this transition.
- 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 percent to premiums. Combined with other rating rule changes, premiums could increase by up to 8 percent in 2016.
- An analysis by the Oliver Wyman group found that two-thirds of groups in the 51-100 market would receive premium increases of an average of 18% in 2016.
- Rather than face increasing premiums or choose from different health plans available in the newly expanded small group market, many healthy mid-size groups could leave the market and either self-fund coverage or drop it entirely and send their employees to the health insurance exchanges. In either case, the exit of healthy groups could dramatically destabilize the newly expanded small group market, with further exits leading to a rate assessment spiral in future years.