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CMS FAQs Address Change in Small Employer Definition

Frequently Asked Questions on the Impact of PACE Act on State Small Group Expansion (Oct. 19, 2015)

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Visit the Health Care Reform Community on Checkpoint to join the discussion on this development (for Checkpoint subscribers to EBIA’s Health Care Reform manual).

CMS has issued FAQs on the impact of recent legislation that amended the definition of “small employer” for purposes of health care reform’s insurance market and small business health options program (SHOP) Exchange provisions (see our article). The legislation generally defines a small employer as one that employed an average of 1–50 employees during the preceding year, with an option for states to extend the cutoff to 100 employees. (Absent the legislation, the cutoff would have increased to 100 employees for all states, beginning January 1, 2016.) Here are highlights:

  • State Elections. States electing to extend the small-employer cutoff to 100 employees may take any action within the authority of the applicable state regulatory agency that makes the definition legally binding on health insurers in the state. Elections must apply uniformly to all health insurers in the state, including those in the SHOP. States electing to make the extension effective January 1, 2016 are requested to notify CMS by October 30, 2015. For other effective dates, states are requested to notify CMS as soon as practicable.
  • Scope of Legislation. The FAQs explain that a state’s small-employer cutoff will apply for purposes of medical loss ratios, risk corridors, and risk adjustment reporting. However, the legislation does not affect employee counting methods that apply for these purposes.
  • Changes to 2016 Rate Filings. States with SHOPs not using the federal platform ( have the discretion to allow resubmission of small group coverage rate filings, including changes to rates for the first quarter of 2016. Insurers offering small group coverage in states with a federally facilitated SHOP, and those offering such coverage in state-based SHOPs using the federal platform, cannot make changes to rate filings for the first quarter of 2016. Insurers offering small group coverage in any state will be able to adjust rates for the second quarter of 2016 to the extent otherwise allowed under applicable law.
  • SHOP Eligibility. On the November 1, 2015 start date of open enrollment for 2016 SHOP coverage, eligibility screens on will ask employers if they have 1–50 employees. CMS will change eligibility screens for states that extend the small-employer cutoff as quickly as possible after November 1, 2015. A related FAQ on CMS’s Technical Assistance Portal explains that if an insurer believes that an employer group with too many employees has inappropriately enrolled in the SHOP, it should notify CMS.

EBIA Comment: Insurers and smaller employers will want to stay tuned to see which states elect to extend the small-employer cutoff. Note that the legislation did not change any of health care reform’s other employer-size requirements. For example, the applicable large employer definition under the employer shared responsibility provisions remains unchanged (see our article). For more information, see EBIA’s Health Care Reform manual at Sections XIV (“Insurance Mandates”) and XXI.D (“Small Business Health Options Program (SHOP)”). See also EBIA’s HIPAA Portability, Privacy & Security manual at Section XVIII (“Guaranteed-Availability and Guaranteed-Renewability Rules for Large Group, Small Group, and Bona Fide Association Plans”).

Contributing Editors: EBIA Staff.

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