Employers in several states are bracing for higher health-care costs as some governors, worried about the impact on state budgets from the federal overhaul, resist a planned Medicaid expansion.
Employers of mainly low-wage employees, such as this Mooyah burger restaurant in Plano, Texas, could face higher health costs because states were allowed to opt out of the health law’s Medicaid expansion.
Under the new law, lower-paid workers at companies such as the Nashville, Tenn.-based chain of Captain D’s seafood restaurants could qualify for the national expansion of Medicaid set to begin in 2014. Having those employees on Medicaid, the health program for low-income people that is funded with federal and state dollars, would mean the workers get health insurance while the company pays nothing.
But the Supreme Court ruling on the health law last summer let states opt out of the law’s Medicaid expansion. Captain D’s operates mostly in Southern states that have signaled they will opt out, arguing that it is unfair to expose their already-strapped budgets to the federal government’s overhaul of health care.
That means the company will have to spend thousands of dollars to insure each full-time worker who can’t enroll in the program, or pay fines starting at $2,000 a person.
“If the state doesn’t expand the Medicaid coverage then by default that population becomes the responsibility of their employer,” said Michael Folks, Captain D’s general counsel and a senior vice president.
That has paved the way for tough choices for states. If states don’t expand the Medicaid programs, the cost of covering millions of uninsured full-time workers will fall to employers. But state lawmakers also worry their budgets can’t absorb the costs of participating over the long term.
To date, some 25 governors have indicated they want to take part in the expansion, including, just last week, Republicans John Kasich of Ohio and Rick Snyder of Michigan. The other 25 governors, mostly Republicans, are considering sitting out or have said they would do so, including Pennsylvania’s Tom Corbett, who said last week that he didn’t plan for his state to participate.
Some governors’ choices could be upended by state legislators, but employers have begun trying to come up with a backup plan for insuring millions of additional workers next year.
“The more people we [insure], the more our costs would certainly go up,” said Alexis Barnett Gillette, director of marketing for the Mooyah burger-and-fries chain. It owns three restaurants in Texas, where Republican Gov. Rick Perry opposes the Medicaid expansion.
Some states have taken employers’ complaints into account. The New Mexico Human Services Department said states would be imposing a “de facto tax increase” on businesses if they didn’t expand Medicaid. Human Services Secretary Sidonie Squier made that point to the Republican governor, Susana Martinez, who opted to go ahead with the expansion last month.
But in South Carolina, Republican Gov. Nikki Haley ruled out the expansion. Her health and human services director, Tony Keck, said he was worried employers who already provide health benefits to low-wage workers could use any Medicaid expansion to drop insurance coverage and dump responsibility for their workers on the government.
The health law included provisions for all states to extend their Medicaid programs to people whose income is as much as one-third greater than the federal poverty level, which would be up to $14,856 for a single person. That would have added 16 million Americans to the insurance program for the poor, including millions of full-time workers who make minimum wage or slightly higher, as part of the law’s goal of covering most of the country’s uninsured.
The federal government will pay the full costs of covering the new Medicaid enrollees from 2014 through 2016 and at least 90% in each subsequent year. Lawmakers opposed to the expansion say states can’t afford the additional administrative expenses, let alone their long-term share of coverage costs. They also fear the federal government could scale back the amount it pays in the future.
Many business associations opposed the health law, chiefly because it requires large companies to offer a generous level of low-price coverage to all full-time workers, or pay penalties, starting in 2014. These groups say they are worried about the government-budget impact of expanding Medicaid.
“Business owners may be exposed [to higher costs] if the expansion does not go through,” said Amanda Austin, director of federal public policy for the National Federation of Independent Business, which brought the Supreme Court suit against the law. “On the other hand, business owners are generally concerned from a macro-entitlement perspective that these costs are going to be passed onto businesses indirectly.”
Katie Mahoney, executive director of health policy for the U.S. Chamber of Commerce, pointed to recent rules published by the administration that determined the poorest people living in states that don’t expand Medicaid won’t have to pay personal penalties for going uninsured. “There’s a very compelling argument” for the federal government to give employers the same exemption, she said.
Obama administration officials say the Medicaid offer is too good for states to refuse—an argument some low-wage employers are echoing. “I don’t know why you wouldn’t take the opportunity to grab those [Medicaid] dollars,” said Ben Bledsoe, chief executive of a Missoula, Mont., group of home health companies that care for people with disabilities in 10 states.
Mr. Bledsoe predicts his Consumer Direct Personal Care companies won’t be able to charge employees more than about $100 a month for their share of private-insurance premiums given the law’s restrictions. That likely will leave the company paying as much as $5,000 a year to newly insure each worker. Penalties for not insuring workers might be less, but unlike the cost of coverage, wouldn’t be tax deductible.
He said he is constrained in raising prices for customers because most of his services are reimbursed at fixed rates by government health programs, including Medicaid, and that he would have to resort to cutting wages instead if he can’t find another solution.
Some multistate employers worry about additional administrative problems if some states expand Medicaid and others don’t. Allison Brown, director of employee services for Regis Corp.RGS -0.25% hair salons, said most stylists make too much money to qualify for Medicaid. But she said she still would have to tailor the company’s lowest-premium health insurance plan to accommodate lower-earners in states that opt out of expanding the program. That could boost the amount the company has to pay to subsidize an employee’s share of the premiums, she said.