California’s Governor Brown has signed SB 125, which conforms California’s definition of a small group, for insurance purposes, with the definition in the Affordable Care Act (ACA). This is good news for some groups.
Existing California law would have defined a small group, for plan years beginning January 1, 2016 and later, as a group with no more than 100 eligible employees on at least 50% of the working days during the preceding calendar quarter or calendar year. Now, California’s insurance laws will have the same definition of a small group as under federal health care reform. This means that some employers with fewer than 100 eligible employees will still be considered large groups because federal law counts part-time, seasonal and variable-hour employees in determining the number of full-time equivalent employees.
It can be quite beneficial for a group to be considered large, rather than small for the following reasons:
- Generally, small group rates are higher than rates for large groups.
- Small groups have fewer plan design options available.
- Small groups may have different (narrower) networks of providers than large groups.
- Small groups are age rated.
- Small groups must cover all essential health benefits under health care reform.
Under federal law, starting with plan years beginning in 2016, a small employer is one with fewer than 100 full-time employees. This calculation includes full-time equivalent employees, calculated by dividing the total hours worked by employees who are not full-time employees by 120. This calculation is made for each month and the average for a calendar year is used to determine an employer’s status as large or small for the following calendar year. The calculation applies based on all employers in a controlled group of companies.