14 December 2015

The PACE Act: Relief for Some Mid-Sized Employers

Recent legislation rolls back the impact of Health Care Reform on certain mid-size employers. As a result of this change, these employers may be able to obtain group health insurance coverage on a more cost effective basis.

Many of the insurance market reforms imposed under Health Care Reform only apply to fully insured policies sold in the individual and “small group” markets. (These market reforms don’t apply to fully insured policies sold in the “large group” market or self-funded group health plans).

Historically, the definition of “small group” was set by state law and only included employers with 50 or less employees. Health Care Reform expanded the small group market—under federal law—to employers with 100 or less employees effective January 1, 2016. So, beginning January 1, 2016 many mid-size employers would—for the first time—only be eligible to purchase a fully insured group health policy in the small group market, which are subject to these insurance market reforms.

The PACE Act eliminated the scheduled expansion of the small group market on January 1, 2016 under federal law. Instead, the PACE Act gives states discretion to limit the small group market to only employers with 50 or less employees or to expand it to include employers with 100 or less employees.

Notable Insurance Market Reforms That Only Apply in the Small Group Market
Here are some of the more “notable” insurance market reforms that only apply in the small group market:

  • Essential Health Benefits: Group health policies must cover services and items in all 10 essential health benefit categories.
  • Actuarial Value: Group health policies must fit into one of the following four actuarial value levels that are defined by Health Care Reform: bronze, silver, gold or platinum.
  • Rating Requirements: Group health policies cannot be “experienced rated” (i.e., underwritten based on the participants’ previous claims experience). Rather, these policies must be underwritten on a member-by-member basis using “adjusted community rating.” Under adjusted community rating, premiums may only vary by: (1) coverage tier (i.e., individual or family coverage); (2) geographic rating area; (3) age; and (4) tobacco use.

Many mid-size employers renewed (or considered renewing their group health policies) early to avoid the application of these insurance market reforms for an additional year because they typically resulted in a significant cost increase to the employer. So, the PACE Act provides welcome relief to these mid-size employers.

Michigan Didn’t Expand the Small Group Market
On October 9, 2015, the Michigan Department of Insurance and Financial Services (“DIFS”) issued an order stating that, in Michigan, the small group market would continue to only include employers with 50 or less employees. As a result, mid-size employers in Michigan will continue to be eligible to purchase group health policies that are not subject to the insurance market reforms that only apply in the small group market.

If you have any questions about the PACE Act or how it may affect your organization, please contact the author or one of the members of the Health Care Reform Team.