On October 7, 2015, the President signed H.R. 1624, the Protecting Affordable Coverage for Employees Act (PACE), which amends the Affordable Care Act (ACA) requirement that employers with 100 or fewer employees be treated as small employers. Under the ACA, the definition of small employer was set to change effective January 1, 2016 from an employer with an average of 50 or fewer employees to an employer with an average of 100 or fewer.
The change upward was notable because employers with 51-100 employees shifting from the large group to small group market in 2016 could see significant changes in premium costs because of ACA requirements that are not applicable in the large group market. For example, the ACA restricts the rating factors that can be used to set premiums in the individual and small group markets to include only age, geographic location, family size and tobacco use. Other rating factors commonly used in the large group market, such as claims experience, group size, industry and gender, cannot be used for 51-100 employees groups shifting into the small group market in 2016.
Although PACE has been signed into federal law, there will be no impact on California employers with 51-100 employees. Under PACE, states still have the option to expand the definition and, as discussed in our July 2015 Briefing, California law already incorporates the new definition of small employer and there is no indication the state Legislature will take action to revert back to the old definition.