Issued by: Centers for Medicare & Medicaid Services (CMS)

Issue Date: January 25, 2019

Program Area: Risk Adjustment (RA)

Question: How should an issuer count an employer's employees in determining whether an employer is a small employer or large employer for purposes of the MLR, risk corridors, and risk adjustment programs?

Answer: For the Medical Loss Ratio (MLR) program established under Section 2718 of the Public Health Service Act (PHS Act), the issuer should use an employee counting method to determine group size consistent with the definitions in Section 2791(e) of the PHS Act. Therefore, issuers should determine small and large group market classifications for the MLR program by counting the total number of all employees (including full-time, part-time, and seasonal) employed by the employer on business days of the calendar year preceding the coverage effective date, and average it over the number of business days in that year. See 45 CFR 158.103 and related technical guidance.* Risk Corridors: For the risk corridors program, the issuer should use the employee counting method used to determine group size under State law. See 45 CFR 153.510(f). However, under section 1304(b)(4)(D) of the Affordable Care Act and 45 CFR 155.710(d), when a small employer participating in a SHOP ceases to be a small employer solely by reason of an increase in the number of its employees, it will continue to be treated as a small employer for purposes of SHOP participation, and the issuer should treat such an employer as a small employer for purposes of risk corridors. Risk Adjustment: For the risk adjustment program, the issuer should use the employee counting method used to determine group size under State law, unless that counting method does not account for employees that are not full-time. If the State counting method does not take non-full-time employees into account, then the issuer should use the counting method under section 4980H(c)(2) of the Internal Revenue Code. See 79 FR 13754-13755. However, under section 1304(b)(4)(D) of the Affordable Care Act and 45 CFR 155.710(d), when a small employer participating in a SHOP ceases to be a small employer solely by reason of an increase in the number of its employees, it will continue to be treated as a small employer for purposes of SHOP participation, and the issuer should treat such an employer as a small employer for purposes of risk adjustment. *CCIIO Technical Guidance (CCIIO 2011-004): MLR FAQ #18 (July 18, 2011); CCIIO Technical Guidance (CCIIO 2012-002): MLR FAQ ##27-28 (Apr. 20, 2012); CCIIO Technical Guidance (CCIIO 2012-003): MLR FAQ #39 (May 24, 2012); available from https://www.cms.gov/cciio/resources/Regulations-and-Guidance/index.html#Medical Loss Ratio. See also Frequently Asked Questions on the Impact of PACE Act on State Small Group Expansion (Dec. 17, 2015), available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQ-on-the-Impact-of-the-PACE-Act-on-State-Small-Group-Expansion-12-17-15.pdf.

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