Feds Can’t Force Medicaid Expansion – Good or Bad News for Employers?

As many of you know, we try our best to be apolitical when it comes to interpretation of various legal and regulatory updates. There are plenty of other outlets for that. We are focused on the impact on employers and their employees. So when the most significant new development created by the SCOTUS decision centers around Medicaid expansion, we immediately analyzed the potential impact on employers.  Let’s walk through the ruling and the potential outcomes and what it means to you and your clients.

While I was personally surprised with the SCOTUS outcome (and impressed by the nuanced maneuvering around the Commerce Clause issue), I want to focus on the “new” stuff we must now consider because of the ruling. Specifically, will states opt in to the expanded definition of Medicaid? And if they don’t, how will employers in those states be impacted?

In a bit of a surprise, the majority opinion, authored by Chief Justice Roberts, found the Medicaid expansion to be constitutional in part and unconstitutional in part. The opinion upheld Congress’s right to stipulate the conditions under which federal funds are used by states; however, the opinion also found the threat of a state losing all of its existing Medicaid funding if it elected not to participate in the expansion to be unduly coercive. Consequently, the decision maintains the expansion of Medicaid provided for under PPACA as optional to all states, by prohibiting the Secretary of Health and Human Services from discontinuing funds for existing Medicaid programs for those states that choose not to participate in the expansion.

So, what does this mean?

Well, this means that the twenty-six states that brought suit gained a partial victory: they won’t lose any existing funding if they choose not to participate in the expansion. Elected officials for many states have already issued statements regarding the ruling. The governor of Washington, one of the 26 plaintiffs that brought suit, has indicated that her state most likely will participate.

This, however, does not necessarily mean that all twenty-six will choose to participate. Lieutenant Governor Tate Reeves has expressed serious doubt about Mississippi’s likelihood of opting to expand Medicaid. "An expanded Medicaid program would add almost 400,000 new enrollees and cost the state an estimated $1.7 billion over the next ten years. Mississippi taxpayers simply cannot afford that cost, so our state is not inclined to drastically expand Medicaid.” Nebraska Governor Dave Heineman also expressed concerns about the impact the Medicaid expansion would have on other state programs, calling the expansion “unfunded.” As of the date of this newsletter, other participating states, such as Idaho, have not yet released statements regarding the decision. Just yesterday, Rick Scott from Florida said they won’t expand while certain Republican members of the legislature said they would. I guess we are in store for some more wrangling over the next several months.

But back to the point - how will this affect employers?

In states that elect to expand Medicaid eligibility, all individuals with household incomes below 138% of the federal poverty line (FPL) are eligible to receive coverage through Medicaid. When they enroll in this coverage, employers are not penalized.

In states that elect not to expand eligibility, all individuals between 100% and 138% FPL would be eligible for premium tax credits and out-of-pocket subsidies at the Exchange if the employer’s coverage is deemed unacceptable or unaffordable. If an individual receives a tax credit, their applicable employer will be subject to the $3,000 tack-hammer penalty.

So, by not expanding Medicaid eligibility, a state may be increasing the potential liability for their employers. This will especially be true for businesses with lower wage part-time employees such as retail and hospitality.

How will this affect you?

States now find themselves in a tenuous situation where, if they choose not to expand eligibility, the lowest income working adults will not have access to affordable insurance, and employers in that state will potentially be subject to higher penalty. For the first 3 years, the eligibility expansion is 100% federally funded, tapering off to 90% by 2020; however, the federal funding is for coverage only and does not extend to increased administrative costs. The administrative burden of handling the new potentially eligible Medicaid recipients can prove costly, as expressed above by Mississippi Lieutenant Governor Tate Reeves.

In short, while the Supreme Court’s decision provided some clarity around the fate of PPACA, it also raises many questions and increases the likelihood of future changes. We anticipate that most states will develop projections to examine the impact of both expanding and opting out, as either decision carries significant impact. Based on those decisions (*Opportunity Alert*), employers will look to their brokers for guidance and strategy. As you would expect, we have already modified our CHROME Compass platform to model the various scenarios and the impact on employers.  Over the next couple of months we’ll discuss strategy and outcomes in more detail.

This article was first featured in the July 3rd edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

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