The ruling by the Supreme Court last year on the constitutionality of the federal health care law, PPACA, may have saved the law itself, but part of that ruling also struck down the Medicaid expansion penalty, leaving the decision up to the Governor of each state whether or not to expand. So, what does that mean? How does it affect implementation of PPACA? Will it affect employers?
First, let's examine what has happened since the ruling and how Medicaid expansion fit into PPACA. Immediately following the ruling, several states announced they would not participate in the expansion and as of the date this article was written, 13 states have declined or are leaning towards declining. Another 17 have not decided and 20 states plus Washington, D.C. have signed on. The states that have declined cite that Medicaid is already too costly and they don't trust that the feds will keep up their end of the bargain to provide the funding for the expansion.
Expanding Medicaid was a big part of how PPACA was going to cover a chunk of the 30 million uninsured – the intent was to cover almost half. Originally, it would cover those individuals with incomes up to 138% of the Federal Poverty Level. With states opting out, those who would have been covered under Medicaid will now be left with few options. They can get coverage through an exchange, but it will be too expensive for many even with the government subsidies. This will be the sort of “donut hole” of health care reform. Purchasing coverage on the open market or through an employer (which may or may not be available) may be cost prohibitive. These individuals will likely continue to access care the same way they always have – either go without, or use emergency rooms for their healthcare needs. It's an unintended consequence that will need to be resolved.
The concern that is being promulgated in employer and employee benefits circles is that it's going to cost employers more. The reasoning is this: The individuals who can't enroll in Medicaid in those states that don't expand the program will potentially purchase subsidized coverage at a public Health Care Marketplace (“Exchange”). This in turn could cause an employer to have to pay a penalty. Under PPACA, an employee eligible for Medicaid would not trigger the Pay or Play penalties that apply when an employee goes to an exchange.
However, let's take a step back and examine this more holistically. The fear is that because a state does not expand Medicaid, employers are subject to the “Pay or Play” penalty to a projected tune of a billion dollars a year. But, based on what we know and understand today, employers with 50 or more full time equivalent employees avoid the penalty by 1) offering affordable coverage and 2) offering coverage that meets the “minimum value” standard under the Act. So as long as the employer satisfies these 2 requirements, the employer avoids the penalty if an employee obtains coverage at an exchange AND the employee cannot receive a subsidy through the exchange. That means the only employers who would need to be concerned are those who would already be subject to the penalties for not “playing” in the first place. And for those employers, it does not matter how many employees obtain subsidized coverage from an exchange because it takes only one employee with subsidized coverage for the employer to be subject to the penalty for every employee (minus the first 30, which are waived under PPACA).
There are legitimate concerns in states that have decided not to expand Medicaid. Fewer people will be covered and will not have affordable access to care which will create a burden on the system. But for large employers subject to the employer mandate, they will not be subject to penalty as long as they are offering affordable, minimum value coverage. How this ultimately plays out in these states will be important to watch as we get closer to 2014.