A new study provides states with yet another reason to accept federal funding to extend Medicaid coverage to more uninsured people.  A study by Jackson Hewitt Tax Service found that states that fail to accept the Affordable Care Act’s Medicaid option will leave employers exposed to higher shared responsibility payments than employers in states that accept the Medicaid option.

If the current 22 states that are undecided or opposed to the Medicaid expansion do not move forward, it could result in an estimated $876 million to $1.3 billion annually in employer shared responsibility payments in those states, according to the study.   It’s important to note that these are theoretical estimates as employers have options to avoid the penalties and it is unclear how many employees will reject inadequate, unaffordable employer-offered coverage to opt for exchange plans.

As Say Ahhh! readers know, the Affordable Care Act was designed to offer coverage to a wide variety of people along the income scale, however, that continuity of coverage was disrupted when the Supreme Court ruling effectively made the Medicaid expansion optional for states.  Many states realized what a good deal the Medicaid option would be but a few Governors have flat out rejected the option while other states are still debating whether or not they will accept federal funding to extend Medicaid coverage to more uninsured residents.  Several reports have documented the impact these decisions have on state residents and state economies but this is the first major report to document the potential impact on employers through the shared responsibility lens.

So how does the Medicaid expansion decision impact employers?

The Affordable Care Act requires employers with more than 50 full-time equivalent  employees to offer minimal essential health care coverage to their employees working at least 30 hours per week. If they fail to offer coverage or the coverage they offer is unaffordable or inadequate, their employees are eligible for subsidized coverage in an exchange and the employer must pay a shared responsibility penalty.  In states that accept the Medicaid expansion option, low wage workers earning less than  133%FPL without affordable employer-based coverage could enroll in Medicaid and their employers would not incur a penalty.  However, in states that decide against the Medicaid option, that choice would not be available. Instead, employees between 100% FPL and 133% FPL who are without adequate, affordable employer-offered plans would have nowhere else to turn for coverage but to the exchanges (aka “marketplaces”) where they will be eligible for tax credits.

Employers only have to pay a shared responsibility payment for employees who use premium tax credits to purchase coverage on the exchange.  The shared responsibility payment is up to $3,000 per employee that uses premium tax credits to purchase exchange coverage (or $2,000 for each full time employee minus 30, whichever is less). It’s important to note that these are theoretical estimates as employers have options to avoid the penalties and it is unclear how many employees will reject inadequate, unaffordable employer-offered coverage to opt for exchange plans.  (As Say Ahhh! readers know, the affordability test only applies to the individual employee not family coverage.)

The researchers based their findings on the U.S. Census Bureau’s Current Population Survey data (2011- 2012).  The study broke down the estimated penalties employers would have to pay by state.  For example, in Texas, employers could be exposed to as much as $448 million.  Florida employers could incur up to $219 million in penalties.  The estimate is $36 million for Wisconsin and about $32 million for Mississippi employers. (See how the decision your state leaders make on the Medicaid option could impact employers  by checking out state-by-state estimates included in the study.)

In conclusion, the researchers stated:

“Any projections of the “net” costs of Medicaid expansions should reflect the very real costs of such liabilities to employers in any particular state.”