CMS clarifies impact of PACE Act on SHOP exchanges

The Centers for Medicare & Medicaid Services (CMS) has issued Frequently Asked Questions (FAQs) on the impact of the recently enacted Protecting Affordable Coverage for Employees (PACE) Act, which revised the definition of “small employer” for purposes of the health care exchanges. The PACE Act, effective October 7, 2015, amends section 1304(b) of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) to define a small employer as one that employed an average of 1-50 employees on business days during the preceding calendar year. It provides the option to states of extending this definition to include employers with up to 100 employees.

How states can extend definition. With regard to what would constitute a state’s extension of the number of employees set forth in the PACE Act, the CMS advises that an action by a particular state to extend the definition of small employer to one with 100 employees that is legally binding on health insurance issuers in that state will constitute an acceptable election to extend the PACE Act’s definition. It does advise, however, that states making this election must apply it uniformly to all health insurance issuers in the state, including those in the Small Business Health Options Program (SHOP).

If a state wishes to extend its definition of small employer to up to 100 employees for coverage effective January 1, 2016, it must notify CMS of its election by October 30, 2015, at If a state wishes to use a later effective date, it should notify the CMS as soon as practicable.

Rate filing modifications. The CMS has also announced that a state with a state-based SHOP may allow resubmission of small group coverage rate filings for the first quarter of 2016 only if they do not rely on the federal platform. The existence of technical constraints means that issuers offering small group coverage in states that either have a Federally-facilitated SHOP (FF-SHOP) or have a state-based SHOP but use the federal platform cannot make changes to rate filings for the first quarter of 2016. However, all issuers offering small group coverage may adjust rates for the second quarter, for rates effective April 1, 2016.

Counting methodologies do not change. The CMS also states that the PACE Act has not changed employee counting methodologies for either the FF-SHOPs or the state-based SHOPs. The medical loss ratio (MLR), risk adjustment, and risk corridors programs remain the same.

Impact on reporting. For purposes of MLR, risk corridor, and risk adjustment, the definition of small employer is to follow the state’s definition. The CMS adds, however, that if, while a state is transitioning its definition of small employer from 100 employees to 50 employees, a small group policy is issued to a large employer, the large group employer’s information should be filed with the small group market for that particular state for the purposes of the MLR, risk corridor, and risk adjustment programs for the applicable reporting year. That way, it will align with the policy that was issued to the employer, regardless of the employer’s actual size.

Corresponding changes to Once open enrollment for 2016 coverage begins on November 1, 2015, all FF-SHOP eligibility screens on will ask employers if they have between one and 50 employees for purposes of SHOP eligibility. The CMS states that it will not have time, between the enactment of the PACE Act and the start of open enrollment, to change these screens for specific states by November 1, but it will do so as soon as possible. Until then, the SHOP Call Center and stakeholder groups will be advised on how to communicate the appropriate options to employers in states that opt to expand small employer eligibility. The CMS says that it expects to be able to make changes to the online system within a month of notification by a state of its election to expand its small employer definition.

SOURCE: FAQs on the Impact of PACE Act on State Small Group Expansion, October 19, 2015.

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