For the purposes of defining large and small group health insurance markets, most states currently define a small employer as an employer that has 50 or fewer employees. For plan years effective January 1, 2016, the Affordable Care Act (ACA) expands the definition of a small employer to include those that employed an average of between 1 and 100 employees on business days during the preceding calendar year and that employ at least 2 employees on the first day of the play year.
The ACA change means that some employers who have traditionally purchased policies in the large group market will be shifted into the small group market for 2016 and beyond. Non-grandfathered fully-insured plans in the small group market are saddled with a number of ACA mandates that do not apply in the large group market – these provisions include:
Essential Health Benefits: A scope of benefits covered by a typical employer and cover at least 10 prescribed general categories of items and services
Rating Restrictions: Premium rate variation may only be based on Age (within a ratio of 3:1 for adults); Family Size (individual or family); Geography (rating area); and Tobacco Use (within a ratio of 1.5:1) – all other rating factors are prohibited
Metal Levels: Plan coverage outside the Exchange must match up to the Exchange levels of actuarial value (referred to as metal levels) – each metal level is based on a specified share of the actuarial value of the plan’s essential health benefits and coverage levels are as follows: Bronze Level (60% actuarial value); Silver Level (70% actuarial level); Gold Level (80% actuarial level); and Platinum Level (90% actuarial value)
To help mitigate the ACA’s impact on health insurance premiums to applicable groups, some employers are considering renewing their coverage early for 2016. Note that the IRS has indicated that a plan year change that is not made for a valid business reason will not meet the requirements for transition relief from the employer shared responsibility (Play or Pay) provisions for mid-size applicable large employers – and associated penalties will not be delayed until 2016.