Employer Mandates and Medicaid Expansion

March 14, 2013

By: Nicole Kaeding

Advocates of Medicaid expansion are pushing a new argument to coerce states into acting. They claim that unless a state expands its employers will be subjected to increased tax penalties. Like so many things being said across the country regarding Medicaid, these statements are a misunderstanding of the complicated and complex health care law.

This argument is obviously flawed for several reasons.

First, as Michael Cannon of the Cato Institute and  Jonathan Adler of Case Western Reserve University have ably argued, this employer penalty tax will only hit businesses in states that have state-based exchanges; federal or partnership exchanges don’t trigger the tax.  The IRS guidance on this issue is in direct conflict with the clear text of the President’s health care law. The state of Oklahoma is challenging the IRS’ flawed guidance. But none of the states that are currently on the fence about expansion have state-based exchanges: Arkansas (partnership), Texas (federal), Florida, (federal), Ohio (federal), Pennsylvania (federal), Arizona (federal), etc. Arguing that the employer mandate taxes will apply in these states is outright false.

Second, if the tax does end up applying to businesses in states with federal and partnership exchanges, the tax would only apply to businesses when their employees purchase insurance through the exchange and only if the employer-sponsored insurance is unaffordable.  Even some supporters of the President’s law admit that many people between 100-138% FPL will instead opt to pay the individual mandate penalty, only $95 in 2014, instead of spending the time, effort and money to purchase insurance on a health insurance exchange—even with the federal tax subsidy. Additionally, individuals between 100-138% FPL could have employer-sponsored insurance options available to them as well. So even if the tax does apply, it will be insignificant, not the $1.3 billion floating through the media.

Third, it’s very difficult for a full-time employee to make only 100-138% FPL. For an individual, this is only $11,490 to $15,282 a year.  A full-time, minimum wage job pays over $15,000 annually. The vast majority of people in this income range are part-time employees meaning they are exempt from the employer mandate provisions. Additionally, this will lessen their aggregation toward the 50 full-time equivalents necessary to trigger the business tax, even with the lower 30-hour definition of full-time work.

Supporters of the President’s health care law are worried that states won’t be willing participants in the flawed expansion of the broken, costly Medicaid expansion, so now they are resulting to false statements and arguments to scare states into acting. Perhaps they aren’t being disingenuous and just don’t understand their beloved, complicated regulatory nightmare. Regardless of the their reasons for false statements, states should ignore the arguments and instead look at the facts.

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