Hospitals

Study: Governors who opt out of Medicaid expansion may create new tax bill for employers

Governors who opt out of the Medicaid expansion may be creating a bigger tax bill for employers in their states. Why? “Shared responsibility” penalties are much more likely to kick in for employers in states that don’t expand Medicaid. This tax comes into play if certain employees can’t afford insurance from their employer and turn […]

Governors who opt out of the Medicaid expansion may be creating a bigger tax bill for employers in their states.

Why? “Shared responsibility” penalties are much more likely to kick in for employers in states that don’t expand Medicaid. This tax comes into play if certain employees can’t afford insurance from their employer and turn to exchanges, and the associated tax credits for health insurance.

As with most policy components of the Affordable Care Act, the explanation is complicated. But given the potential price tag for employers — up to $447 million in Texas — it’s worth paying attention to the details.

Brain Haile of Jackson Hewitt Tax Service recently calculated the potential shared responsibility bill for employers in all 50 states.

His study focused on uninsured adults who are under 65, working full time for a company with 50-plus employees, and earning between 100 percent and 150 percent of the federal poverty level.

Haile used the latest census data to estimate the number of who meet these three criteria. The data showed that:

  • 46 percent of these uninsured individuals work for companies with 50 or more employees
  • 91 percent of the firms at which these employees work would offer some form of health coverage

Based on those assumptions, about 1.01 million people fit this criteria and could enroll in the premium assistance tax credits.

Haile used the example of a custodian who works for a county government. “The county provides insurance, but the person’s wages are so small that 25 percent goes to insurance, which makes it unaffordable,” Haile said.  That person could qualify for coverage through an exchange and the tax credit that goes along with it.

If the employee gets insurance through the exchange, the employer would pay a related tax, the shared responsibility penalty. This penalty applies to employers that offer health coverage and have 50 or more full-time equivalent employees. The fines are up to $3,000 for each employee who gets the premium assistance tax credits. The provision caps an employer’s total liability at approximately $2,000 multiplied by the total number of employees.

If the person is eligible for coverage through Medicaid instead of an exchange, the employer avoids the penalties.

“Businesses will have a lower tax penalty if more people are eligible for Medicaid,” Haile said.

The actual penalties will depend on how many eligible employees use the exchanges and the tax credit programs. The analysis excludes employees who currently have health insurance.

Another group of people who could add to the total bill are people who are currently insured but who might be eligible for exchange insurance if their coverage is deemed unaffordable. For example, spouses of farmers or ranchers working only for health insurance could drop their employer-provided coverage and buy coverage through the exchange.

“The question is how many will drop what they have and move across to the new option,” Haile said.

Haile is Jackson Hewitt’s first senior vice president for health policy. Before joining the tax preparer earlier this year, he was in charge of drafting a plan for Tennessee’s exchange.

Check out the entire study for cost estimates for all 50 states.