On July 7, 2014, Governor Jerry Brown signed legislation that will give small business owners additional time to comply with the Affordable Care Act (ACA). The bill takes effect immediately as an urgency statute.

Senate Bill (SB) 1446 allows certain small employers (i.e., those with less than 50 employees) to keep their existing, non-ACA compliant health care coverage until the end of 2015, if the employers meet certain criteria. SB 1446 applies to policies that (1) were in effect on December 31, 2013; (2) were still in effect when the bill was signed on July 7, 2014; and (3) do not qualify as a grandfathered health plan under the ACA. These plans will need to become compliant with ACA requirements by January 1, 2016, in order to remain in in force.

SB 1446 adds section 1367.012 to the Health and Safety Code and adds section1011.300 to the Insurance Code.

What does this mean for small employers?

SB 1446 implements transition relief offered by the Obama administration last fall. Among other things, the ACA insurance market reforms imposed new substantive requirements on health insurance policies issued in the individual and small group markets. There was significant press coverage in the Fall of 2013 when insurers began notifying policyholders that their non-compliant policies would not be renewed. This presented problems for the administration, which had previously promised that “if you like your health coverage, you can keep it.” The administration did not rescind the ACA insurance requirements, but in November 2013, it did allow state insurance commissioners to delay imposition of those requirements to small-group and individual health insurance policies in some cases. The administration did not require states to extend this relief, and allowing the relief required state action—such as SB 1446.

For many of the approximately 250,000 California employers in the small-group market, SB 1446 will offer additional time to secure ACA-compliant coverage and make needed adjustments to health plans to manage cost increases that may result from the new requirements. Beginning in 2015, the Small Business Health Options Program (SHOP), which is operated by the California insurance marketplace (Covered California) will be open to smaller employers and will offer a variety of health insurance products and tax credits. The transition relief offered by SB 1446 will enable many smaller employers an opportunity to take better advantage of the SHOP marketplace when they procure fully ACA-compliant insurance policies.

It is important to note that employers in the large group market (i.e., generally over 50 employees) will not be eligible for the transition relief offered by the administration and SB 1446.