Recently, the tax firm Jackson Hewitt released their findings from a study that shows that employers will face higher penalties under the Affordable Care Act in states that aren’t working towards Medicaid expansions. That’s because an employer may be at risk of “Pay or Play” penalties if one of its workers should access exchange subsidies, but not if that same worker would access the Medicaid program.
No doubt this study will be used by Medicaid expansion proponents to make their case as state legislatures across the country consider these decisions. But it is important to The Alliance that employers understand the full story.
The situation that would cause an employer to pay increased penalties per the Jackson Hewitt study exists under the following limited scenario: First, the employer would have to offer coverage that doesn’t meet either the affordability test (lowest cost single plan exceeds 9.5 percent of an employee’s W-2 wages) or actuarial value test (the plan does not cover 60 percent of the costs of covered benefits). At this point, an employee would have to decide to forgo employer coverage and opt for an exchange subsidy instead. If that employee’s household income is under 138% of Federal Poverty Limit (about $32,000 for a family of four) but not eligible for his or her state’s Medicaid program, then the employer would be at risk for a $3,000 per year penalty that the company would not otherwise have had to pay under Medicaid expansion.
This would not impact employers that offer coverage that meets minimum value and affordability requirements for all employees. Nor would it impact employers that do not offer any coverage, as they will be subject to an annual $2,000/per full-time employee (minus $30) penalty regardless.
Also, the study does not take into account other factors, such as cost shifts from Medicaid that providers say exist, or increased taxes as a result of having more people on Medicaid, or programs that states may have that allow employees to “buy in” to employer health benefits instead of opting for Medicaid.
Seeing it as a mixed bag for employers, The Alliance has not taken a position on Medicaid expansion, which is being debated as we speak across the nation. In Wisconsin, the legislature is currently debating Governor Walker’s proposed budget which includes a partial expansion that would cover residents up to 100 percent of the Federal Poverty Limit. Illinois is likely to expand its program up to the federal maximum and the Iowa legislature is looking to compromise with Governor Branstad, who has said he is opposed to expansion.
Members that feel strongly one way or the other on this issue are encouraged to contact us, and their lawmakers, to share their views.