Small Businesses Get Bigger Under the Affordable Care Act

Beginning in 2016, the Affordable Care Act (ACA) will redefine the small group market to include employers with two to 100 employees (instead of two to 50 employees).

What does this mean for employers and employees?

Employers with 51 to 100 employees that are currently in large business group plans will have to transition to small business group plans upon their renewal on or after January 1, 2016.

Benefit Changes: Large group plans are not subject to the same coverage requirements as small group plans. Therefore, large businesses moving into the small group space will need to learn about some of the benefit and coverage changes required of small groups. Specifically, small group plans must offer coverage for a range of “core” health care services, also known as essential health benefits.

Rate Changes: Changes in how insurance premiums are calculated could impact employers in a number of different ways. For instance, large group plans are often experience-rated, meaning the cost of health insurance is calculated based on the group’s demographics and past claims experience. Small group plans are community-rated and based on the health and demographic profile of the geographic region. Therefore, if a large group employer has a healthier, younger workforce, it may have a less favorable rate by moving to a community-rated, small group plan. Or, vice versa, a large group employer with higher claims history could see a favorable experience by moving into a small group plan.

Purchasing Channels and Comparing Products: Large group employers with 51 to 100 employees will have new purchasing options in the small group market. That’s because they will also be able to purchase coverage through the New York State of Health (NYSOH) Small Business Marketplace, in addition to current channels.

Small group plans are organized into metal tiers (bronze, silver, gold, and platinum) to help compare premium and coverage levels. However, it is important to note that metal tiers should not be the only basis for comparison. Health plans can vary when it comes to other benefits, such as provider networks and value-added services.

Does this impact the Employer Mandate?

Also known as the Employer Shared-Responsibility provision or “pay or play,” the employer mandate requires that eligible employers offer health insurance that is affordable and meets minimum value to full-time employees and their dependents*. The mandate applies to employers with 50 or more full-time employees or full-time equivalents. The small group market expansion does not change the employer mandate requirements. Therefore, an employer could be considered a small group (two to 100 employees) for purposes of market eligibility, yet it is still responsible for complying with the employer mandate and is subject to its penalties.

Preparing for change

The New York State Department of Financial Services recently updated its FAQs related to the small group market expansion. The updates begin to scratch the surface on some more details about how the expansion will be operationalized in New York. While many questions still remain, getting up to speed now will help you prepare for the changes in the near future.

Counting method for group size clarified

One important clarification in the DFS FAQs (Q-12) indicates that employers should use the full-time equivalent (FTE) counting method to determine group size/market eligibility. This is a change from the current counting method for determining group size, which solely includes full-time employees who work 30 hours or more per week. The FTE counting method takes into account part-time employees as well. This is also the same method used to determine Employer Mandate applicability.

Employers who think they may have to transition from a large group to a small group can start learning more about how these plans may differ from their current offering. Talk to your broker or CDPHP representative for more information.

Looking for more health care reform and insurance answers?

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