News & Updates

Protecting Small Businesses: President Obama Signs PACE Act to Limit Definition of "Small Employer" October 12, 2015

On October 8, 2015, President Obama signed the Protecting Affordable Coverage for Employees (PACE) Act, which will block the scheduled expansion of the definition of “small employer” under the Affordable Care Act (ACA). PACE, which was passed by a rare unanimous vote in the Senate, will limit the federal definition of “small employer” to those with 50 or fewer employees.

Under the ACA, the size of the employer dictates whether it can participate in the ACA’s small or large group markets. Prior to the passage of PACE, a provision of the ACA was set to expand the definition of small employer as of January 1, 2016, to include businesses with 100 or fewer employees. Most states currently define “small employer” as one having 50 or fewer employees. Importantly, while PACE will limit the federal definition, it will not prevent states — which have their own health marketplaces — from setting the upper limit of small businesses to 100 employees.

The ACA requires that employers falling under the “small business” category must offer their employees health care plans that comply with the Act’s essential benefits requirement. These requirements include coverage of core health services such as emergency care, hospital care, and preventative care, which are not required for those offering a large group plan. Thus, under the previously set expansion, many small employers would have to offer more comprehensive plans than they do now. Proponents of the PACE Act argued that the minimum requirements for the small employers limit the choices available for coverage in the small group market. Those employers that would have fallen into the expanded definition of “small employer” would have seen disruptions to their coverage and possibly higher premiums to employers and employees.

As the expansion was previously set to take effect January 1, 2016, the PACE Act may create problems for those companies that have already renewed their health plans based upon the anticipated expansion. However, for those that would have been reclassified and are still struggling to determine how they were going to provide coverage for all of the essential benefits required by the ACA, they can breathe a sigh of relief, unless their state chooses to expand the definition.

Employers should expect additional regulations and changes to ACA and are advised to keep apprised of new developments,

For more information on how this may impact your business, please contact: