Mercer’s Branch McNeal, National Practice Leader for Government Human Services Consulting, and Dorian Z. Smith, an attorney in Mercer’s Health and Benefits business, sort out some of the complexities of Medicaid expansion for employers looking to develop informed contribution strategies.
With decisions for finalizing 2015 medical plan designs right around the corner, it’s important to consider the potential implications of Medicaid expansion on your overall contribution strategy — and to determine whether you’ll want additional communications in your enrollment materials about any related new options available to employees.
Under the ACA, states have been given access to additional federal funds to expand Medicaid coverage to all individuals with household income up to 138% of the federal poverty level (FPL). From 2014 to 2016, the federal government will cover 100% of expansion costs; between 2017 and 2020, the federal share gradually drops to 90%.
Even if your state isn’t one of the 26 states that have already expanded Medicaid, it’s possible that it will do so in the future — through either traditional expansion or an alternative customized approach (some states have obtained Section 1115 waivers to use matching federal dollars to cover adults up to 138% of FPL through private insurance and greater cost-sharing). In fact, the adoption of “alternative methods” may well reflect concession by initially staunch opponents that the expansion has an important role in the greater effort to reduce the number of uninsured Americans. Still other states may simply be deciding that they don’t want to lose valuable federal tax revenue to another state. Regardless, Medicaid numbers are climbing. The Department of Health and Human Services recently announced that 7.2 million new participants have been added to the rolls of Medicaid and CHIP since October 2013. Currently, Medicaid enrollment stands at 66 million people, or approximately 20% of the US population.
For employers that have a significant segment of part-time and/or low-wage employees who may be Medicaid-eligible and for whom employer health coverage is either not available or not affordable, the expansion represents another piece of the total health-care delivery pie. Together with the public exchanges — through which non-Medicaid-eligible employees having household income of between 100% and 400% of FPL may be eligible for federal premium assistance tax credits — Medicaid expansion is providing greater access to affordable coverage for lower-income workers.
Here are a few considerations to keep in mind as Medicaid continues to put up greater numbers across the country and employers continue to sort out details around the ACA’s employer shared responsibility requirements.
1. In expansion states, employees at or below 138% of FPL, who go to the public exchange, are not eligible to receive premium assistance tax credits but instead are automatically directed to Medicaid with no shared responsibility assessment for the employer.
That said, some states periodically take up legislative efforts to impose penalties on employers to discourage them from sending lower-paid employees to Medicaid. Vermont is the most recent to enact legislation that subjects employers to a quarterly fee for “uncovered employees,” so keep an eye on legislation in your state.
2. The numbers of uninsured patients seeking care through safety net hospitals began to drop almost immediately after Medicaid expansion took effect in January. (See Beth Umland’s June 9 post “Hospitals Seeing Drop in Uncompensated Care Under ACA” and link to related USA Today article.) Many who come through the public exchanges are discovering that they either have been Medicaid-eligible all along or are now eligible under the expansion and are taking advantage of the coverage. These decreases in uncompensated care bode well for lower hospital costs overall and may be a discussion point for employers during medical plan renewal negotiations.
3. Employers in states that have not expanded Medicaid may want to consider using the employer-shared-responsibility FPL safe harbor when determining whether their coverage is affordable. That’s because any employee at or above 100% of FPL will have an offer of affordable coverage based on the FPL safe harbor, and thus the employer will be shielded from shared responsibility assessments. In addition, any employee who is below 100% of FPL will not be eligible for premium assistance tax credits to purchase public exchange health coverage, and thus the affordability analysis is irrelevant.
But in states that have expanded Medicaid, the FPL safe harbor may not be the best approach if an employer’s goal is to maximize employee contributions and still avoid shared responsibility assessments. That’s because the FPL safe harbor typically provides the lowest threshold allowed for the employee monthly contribution. Employers in these states may want to consider use of the Form W-2 and/or rate-of-pay safe harbor methods, which generally allow the employer to set a higher employee monthly contribution and still avoid assessments, keeping in mind that ACA allows for use of more than one safe harbor for employees (or any reasonable category of employees), provided that it’s done on a uniform and consistent basis.
4. For states that haven’t expanded Medicaid and have, for example, a threshold of 75% of FPL for Medicaid eligibility, certain individuals will fall into the coverage gap, because they have household income between 75% and 100% of FPL and also are not eligible for federal premium assistance tax credits to purchase public exchange coverage. Employers in these states might want to consider possible changes in strategy to address low-income employees who get caught between where Medicaid ends and federally subsidized public exchange coverage begins — particularly large, multi-state employers whose policy is to treat everyone the same, but whose employees will fare differently based on where they’re located.
5. States that don’t expand Medicaid likely will experience greater percentages of public exchange enrollment, particularly by low-wage (and often high-utilization) employees who are not eligible for Medicaid. These increased numbers almost certainly will drive up costs.
In today’s complex post-reform world, Medicaid is yet another component for employers to keep tabs on and take into account when developing their health benefit strategies.