SHRM Opposes Expansion of Small Group Market under ACA

Bipartisan effort would maintain the current definition of a small-group market for health insurance

By Stephen Miller, CEBS Jun 1, 2015

Joining with 18 other employer organizations, the Society for Human Resource Management (SHRM) sent a letter of support on May 20, 2015, to congressional sponsors of bipartisan legislation that would maintain the current definition of a small group market for health insurance as one to 50 employees and “give states the flexibility to expand the group size if the market conditions in their state necessitate the change,” as the letter stated.

The letter was addressed to Senators Tim Scott (R-S.C.), Jeanne Shaheen (D-N.H.) and Michael Bennet (D-Colo.), sponsors of the Protecting Affordable Coverage for Employees (PACE) Act. A similar bill has been introduced in the U.S. House by Reps. Brett Guthrie, R-Ky., and Tony Cárdenas, D-Calif.

The small group market has traditionally included employers with up to 50 employees. However, under the Affordable Care Act (ACA), each state can set the size of its small group market at either one to 50 employees or one to 100 until 2016; these employers can participate in the ACA's Small Business Health Options Program (SHOP) to purchase small group plans on state-run or federally facilitated SHOP exchanges. Beginning in 2016, the ACA mandates that all states must let employers with up to 100 workers purchase small group market plans through SHOP. The expansion is intended, among other goals, to provide a larger, more efficient market for SHOP plans.

But the business groups contend that legislation that leaves the size of the small-group market up to the individual states is needed to protect the ability of employers to select from a broader array of coverage options, and to mitigate against dramatic premium increases they fear will occur with the expansion.

Loss of Coverage

“Expanding the small-group market to include groups up to 100 at this time would reduce choice for this segment of the market,” the letter states. “While national insurers are in virtually every state’s large group market, they are only in a portion of the small-group markets—which have numerous administrative requirements for entry. Additionally, any carrier that leaves a market faces a five-year moratorium to re-enter the state, further eroding competition. As a result, many groups size 51-100 will find that they cannot keep the insurer they currently have once they are required to buy coverage in the small group market.”

Higher Premiums

The letter continues, “Expanding the small-group market to include all groups with up to 100 employees would have an immediate impact on premiums due to new rating rules, required Essential Health Benefits, and minimum actuarial value and cost-sharing requirements. As rates increase, more midsized groups may drop coverage or self-insure, resulting in additional rate increases for the small-group market—including for those employers with less than 50 employees.”

The letter sums up, “It is in the best interest of employers and their employees that states determine the definition of their small-group market. Repealing the ACA-mandated expansion and returning to the historical role of state determination would allow flexibility and ensure a broad array of coverage options and mitigate dramatic premium increases.”

Some States Allowing Mid-Sized Employers to Delay Move to Small-Group Market

As noted above, states historically have defined their small-group markets as groups of two to 50 employees. However, beginning Jan. 1, 2016, the Affordable Care Act expands the definition of “small employer” to mean a business that employs between two and 100 employees.

According to a June 2015 blog post by The Commonwealth Fund, while it is unlikely that the Obama administration will unilaterally delay this requirement, there is a transitional policy for mid-sized employers. Under this policy, states can decide whether to permit mid-sized groups to remain part of the large-group market for up to two more years, and thus be exempt from the small-group market reforms during this period.

As of June 2015, 34 states had issued guidance allowing mid-sized employers to remain in the large-group market for up to two years, while nine states continued to prohibit noncompliant policies across all markets, and eight states had not yet provided publicly available guidance to insurers.

Stephen Miller
, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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