Employers may face significant financial penalties in states that do not expand Medicaid

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By Consumers Union on Thursday, February 6th, 2014

Last month, Jackson Hewitt Tax Services issued a report foreshadowing significant financial penalties for employers in states that fail to expand coverage as allowed under the Affordable Care Act (Obamacare). In the two dozen states that have yet to expand coverage, total employer penalties under the law are set to be dramatically higher than the other half of the nation where states are on board with reducing the uninsured.

The impact is the result of Obamacare’s requirement that big employers (over 50 employees) offer coverage or risk paying a penalty if their employees head to new state marketplaces or healthcare.gov and qualify for discounted insurance. This “shared responsibility” provision has a bigger affect on states like Texas, Florida and others that passed up federally funded Medicaid expansion.  A portion of those employees that should have been covered under Medicaid will now qualify for subsidized insurance due to an overlap in the law.

The technical explanation is that Medicaid expansion was meant to cover everyone up to 138% of the poverty line (about $32,500 for a family of 4). But if your state didn’t expand coverage then people from 100% of the poverty line and above (about $23,500 for a family of 4) can qualify for tax credit discounts for private insurance. The lower threshold of 100% in states that don’t expand Medicaid means more people will qualify for tax credits and more large employers will face increased penalties.

Currently, 25 states and the District of Columbia have chosen to expand their Medicaid program or opt for a private alternative. 25 states have chosen not to expand at this time.

If states expand Medicaid, employers will not face a penalty if they do not offer affordable coverage to employees at these income levels. But if states opt out of Medicaid expansion, then Jackson Hewitt estimates that employers can expect additional penalties, more than $1 billion nationwide each year.

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