Recently, Republican governors John Kasich of Ohio, Jan Brewer of Arizona and Rick Scott of Florida decided to expand their Medicaid rolls under the Patient Protection and Affordable Care Act. Their decision left many conservatives scratching their heads since all three governors have been vocal public opponents of the PPACA. A closer look at the choice they faced sheds light on their decision. To understand it, we must first understand specifically how the PPACA expands Medicaid.
Prior to the passage of the PPACA, Medicaid was largely used to provide health care services to children of the indigent, their mothers, the disabled and seniors who spend down all their assets to qualify for long term care services. Under the new law, childless adults will also be eligible for Medicaid with incomes at or below 133% of the federal poverty level (FPL). Since the PPACA disregards 5% of one’s income, the actual new eligibility level is 138% above the FPL. Using the Kaiser Family Foundation’s “Health Reform Subsidy Calculator” we can determine that a childless, adult would be eligible for Medicaid in 2014 if their annual income is at or below $15,302. For a family of four, their income would need to be at or below $31,155.
This is a significant new burden on the taxpayer, not only because 15.1 million childless adults would now be eligible for Medicaid but also because prior to the PPACA, Medicaid eligibility levels were set at 100% of the FPL. In 2012, that was $11,170 for an individual and $23,050 for a family of four in 48 contiguous states and D.C. It is this new annual income level ‘eligibility gap’. Specifically, income levels that fall within 100% and 138% of the FPL that create yet another new problem for employers.
If a governor chooses to expand Medicaid under the PPACA, all of the newly eligible Medicaid recipients would simply be auto-enrolled onto Medicaid via the new ‘Health Insurance Exchanges’. And, since their income levels will be too low to qualify for a ‘Health Insurance Subsidy’. There will be no ramifications to employers if their employee’s annual income levels fall into this new ‘eligibility gap’. These new eligibles would simply enroll in Medicaid and eliminate the risk to their employers of being fined $2,000 annually for each of them under the PPACA “Employer Shared Responsibility” clause.
However, if a governor chooses not to expand Medicaid, employers in their state with 50 or more ‘full time equivalent’ employees would have to provide PPACA approved health insurance for all of their employees with income levels that fall into this new ‘eligibility gap’. The other choice would be to pay a “Shared Responsibility” annual penalty of $2,000 for each employee (excluding the first 30 employees). Many employers will simply pay the annual penalty instead of providing PPACA compliant health insurance, since the law mandates that employers can not require employees to pay more than 9.5% of their annual household income in cost sharing to help them pay for their health insurance.
For example, if the cost to insure a single employee is $5,000 annually, the employer cannot legally require the employee to pay more than $475 each year to help him/her pay for their health insurance coverage. This means the employer’s annual out of pocket cost to insure that employee would be $4,525. In this near future common scenario, paying the $2,000 ‘Employer Shared Responsibility’ penalty just makes better business sense.
While certain Conservative governors may feel pressured to expand Medicaid because of the above scenario, it is crucial that they stick to their principles and not give in to requests from employers who are seeking relief on a micro level. Expanding Medicaid will do nothing but increase health insurance costs to everyone else, further burden taxpayers of other states. It will also require employers to pay much more on a macro level as their tax burdens increase to pay for yet another massive entitlement.
C Steven Tucker is the Health Insurance Subject Matter Expert & Health Care Policy Team Leader for the Illinois Tea Party.