President revises PPACA’s definition of small businesses

The President, on October 7, 2015, has signed the Protecting Affordable Coverage for Employees Act (PACE) (HR 1624), which amends the definition of small businesses and protects them from possible increases in healthcare premiums under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148).

Currently under the PPACA, the definition of the state-based small group markets is scheduled to change in 2016 from 50 to include employers with up to 100 employees. This change would require many small and mid-sized businesses to be subject to different rating rules and requirements, with the potential of increasing the health insurance premiums for small businesses and their employees. The PACE Act would keep the one to 50 definition in place, but states would have the option of expanding the definition of small employer to cover employers with up to 100 employees.

According to a recent report, if the small group definition moves to 100, premiums could increase by approximately 18 percent for a majority of the mid-sized employers. As a result, many employers may choose to self-insure instead of remain in the small group market because those employers will no longer be subject to the various requirements of the small group market. This could further increase the premiums for those left in the newly expanded risk pool. Employers who do not comply with the health insurance mandate face a tax penalty.

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that HR 1624 would result in a net reduction in premiums for health insurance purchased by some firms with between 51 and 100 employees, in the near term. Premiums would be lower, at least in the near term, because some firms would choose to offer insurance that does not meet the standards required under current law. Under current law, the CBO and JCT expect that the Small Business Health Options (SHOP) exchanges will develop additional features, including allowing for employees to choose plans that will enhance competition in the small group insurance market and lead to reduced premiums. Under HR 1624, premiums could also be higher for some firms that are no longer able to purchase insurance through a SHOP exchange.

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