States Opting Out of Medicaid Could Have Negative Consequences for Employers

It’s not just hospitals who stand to take a financial hit if states don’t fully expand their Medicaid programs. Employers could find themselves the subject of some collateral damage, too. If Congressional Budget Office projections are correct, about 3 million more low-income individuals will be added to health insurance exchanges — rather than Medicaid — as a result of the Supreme Court decision making the Medicaid expansion optional. That means there will be a larger group of low-income people who could trigger the Affordable Care Act’s employer penalty.

In states that don’t take the Medicaid expansion, individuals with incomes between 100 percent and 138 percent of the federal poverty level would be eligible for premium tax credits and cost-sharing subsidies to purchase exchange coverage. If an individual in the new exchange population works for a firm of at least 50 employees, the employer could be dinged by the penalty for not providing affordable or comprehensive insurance.

HHS says it won’t impose a deadline on states to decide if they’ll expand their Medicaid programs, though the department says states would have to figure that out soon to expand in time for 2014. Also importantly, HHS hasn’t said whether states can partially expand their programs and still get the Affordable Care Act’s generous matching rate, even though the CBO assumed the administration would allow partial expansions.

And if states could partially expand their programs, it wouldn’t likely be of much help to employers. States may look to expand their programs to 100 percent of the federal poverty level to ensure that everyone has some coverage, but it would still mean 3 million people who would have been eligible for Medicaid would wind up in the exchanges. Those new exchange populations aren’t cheap to cover, either. They’ll earn less than people previously expected to enroll in exchanges, so they’ll get a higher share of federal dollars. And they’re likely to spend more on care, because they’re generally in poorer health, the CBO said.

Coalitions have an important role to play advocating for Medicaid expansion at the state level.