By Josh Shepherd
Amid the advance planning that Kentucky’s employers are doing to comply with health insurance mandates going into effect on January 2014, there is only one big question mark remaining. Will Kentucky adopt Medicaid expansion? As of the end of February, the Kentucky Cabinet for Health and Family Services said Medicaid expansion is still on the table, but there has been no decision yet.
The Medicaid decision is one of the few facets of the Patient Protection and Affordable Care Act’s (ACA) health insurance mandates for which there is no hard deadline. When experts comment on the various strategies open to employers to comply with health insurance mandates before the January 2014 deadline, there is a lot of speculation, but little in the way of a concrete vision about what is going to happen.
Despite the ACA’s intention to provide medical coverage for 100 percent of the nation’s populace, states have been given some leeway to address how they want to work with Medicaid, a program expected to fill the hole for the nation’s uninsured.
Many states, including Kentucky, are wrestling with the question of how they want to extend Medicaid benefits and whether, in the long run, the program can sustain the influx of individuals and families whose incomes are at 133 percent of the federal poverty level. Jose Fernandez, Ph.D., assistant professor of Economics at the University of Louisville, is particularly interested in the answer to that question. According to projections from a number of sources, the extension could increase Kentucky’s Medicaid population by approximately 30 percent, said Dr. Fernandez.
Betsy Johnson, a partner in the law firm of Stites and Harbison and the former Commissioner of the Medicaid program in Kentucky, put an actual number to it. Under expansion, Kentucky could see well over 420,000 new Medicaid recipients.
But the expansion should not be all that alarming, Johnson argued. For the first two years, the federal government will subsidize 100 percent of the program’s cost. That subsidy is written into the Act, Johnson said. But the ACA also states that those subsidies will be reduced incrementally over the course of this decade. Even though subsidies will disappear by 2018, “I think Kentucky is leaning toward Medicaid expansion,” Johnson said.
Janet Craig, also a partner with Stites and Harbison, noted that many red states that opposed the ACA have said they are seriously considering adopting Medicaid expansion. “That includes Florida, where the expected Medicaid population increase would be larger than Kentucky,” Craig said.
Being able to afford the increased Medicaid population is just one issue. “If the objective is to provide everyone health care coverage, the expansion of Medicaid accomplishes that almost overnight. The fed is covering that cost, but eventually those credits go away and the state will still have to find ways to fund it,” Dr. Fernandez said.
But aside from the funding issue, Medicaid expansion has another potentially interesting side effect, particularly with some of Kentucky’s large group employers. For purposes of implementing the state’s Health Exchange program, discussed later in this article, Kentucky’s defines “large employers” as those companies with 51 or more employees. When the insurance mandates go into effect, those large employers must have in place a qualified and affordable health insurance benefit for their employees or they can face some stiff penalties. The health insurance package they offer must, at minimum, provide coverage for the 10 Essential Health Benefits as required by the ACA. The large employer must also provide a match on the cost of premiums such that the employee’s share of the premium does not exceed 9.5 percent of their household income.
However, for many of Kentucky’s largest employers, the wages they pay their employees would actually qualify them for the Medicaid expansion. “In Kentucky, if you are a company like, for example, Wal-Mart, then the majority of your full-time employees are minimum wage earners. They can offer a qualified health insurance benefit, but that benefit requires the employee to pay a portion of the premium as well as co-pays and deductibles. In that situation, it makes more sense from the employee’s perspective to enroll in Medicaid.
For minimum wage workers, the Medicaid option requires no out-of-pocket expenses, no co-pays or deductibles. Why wouldn’t a savvy low wage worker take advantage of that circumstance? Plus, the employer is not concerned about a penalty because they are meeting their obligation under the ACA. The employee has to be the person to opt out of the plan. But I don’t know if there are any controls to prevent that or even if it should be,” Dr. Fernandez said.
The penalty to large employers that offer no qualified health insurance by the deadline is $2,000 times the number of full-time equivalent employees. Those employers that offer a qualified plan but at premiums their employees cannot afford, the penalty is $3000 times the number of employees. For those companies that provide a qualified health care plan with affordable premiums and matches, then there is no penalty.
According to Dr. Fernandez, “Come 2014, the world will not change much for big firms that are already offering good health insurance packages. For others, the impact is going to depend a lot on what they have been doing in the past.”
In contrast to Dr. Fernandez point of view, though, Janet Craig said that the greatest amount of anxiety over the ACA is coming from large firms. Craig has made numerous presentations to business groups and associations about the ACA in order that they can better prepare to meet the requirements and deadlines on time.
“There are still a lot of concerns about additional costs for insurance plans in health care reform and they’re worried about the penalties,” Craig said. Many of the firms that she has addressed have enough employees to fall into the definition of large employer, but to keep health insurance costs low, they have joined with other businesses and, through their professional associations, leveraged purchasing power for their health insurance. Federal law, however, does not view an association as a large employer. So that option is likely to go away in 2014, Craig said.
Furthermore, the ACA also has penalties against so-called “Cadillac Plans” or high cost employer-sponsored health plans that provide higher coverage and higher premiums. “The ACA has a provision to levy a 40 percent excise tax on companies who provide health care plans whose premiums exceed $10,200 for individuals or $27,500 for families. These “Cadillac Plans” which provide higher coverage have been widely criticized because, it’s argued, these plans encourage overuse of medical care,” Craig said.
There are some potential end runs for large employers. For very large employers, there has been speculation that the penalty costs would wind up being less than the expense of providing health insurance, Craig said. There have also been questions about how FTEs are being calculated to determine whether a company qualifies as a large group or small group employer.
“Hiring only part-time people is not an escape from the mandates,” Craig said. “There is a formula that companies can apply if they have questions about that.” There are still some extant grey areas. There was not much information offered about requirements on companies that rely on temporary or seasonal employees. This is an area where individuals could slip through the system’s cracks, said Dr. Fernandez. But this is less of an issue when it comes to small group employers and their access to Kentucky’s Health Exchange program.
Kentucky is one of 16 states that are in the process of implementing its own Health Benefit Exchange program. The program is actually meant to help individuals meet the health insurance mandate. But Kentucky has taken the extra step of making this Exchange program available to small group employers. The idea about providing small group employers with the Exchange option is basically the same as companies purchasing health plans through an association.
The Exchange is designed to give small businesses the same buying power as larger employers. The process of developing and implementing the Health Exchange is already well on its way, said Carrie Banahan, Executive Director of the Kentucky Health Benefit Exchange. “We are on target to begin providing services by the October 2013 deadline. That is when we are scheduled to begin operations.”
Kentucky’s Health Benefit Exchange (HBE) program has been two years into development and this March, its progress will be reviewed by the federal Department of Health and Human Services.
In 2014, business with 2 – 50 employees can elect to provide health insurance coverage to their employees through the Exchange. By 2016, employers of 51-100 employees will have an option to use the exchange. Though a decision has not been made at this point, by 2017 Kentucky could exercise an option to invite large group employers to purchase health plans through the Exchange.
Banahan explained that the Exchange is really nothing more than a marketplace for basic health insurance plans. The benchmark plan upon which insurance companies must base their offerings is the Anthem PPO. Already, Banahan said, several qualified health plans have been submitted for the Exchange and all of the Kentucky-based insurance providers have submitted products, including Humana, United Healthcare, and Anthem among others.
The plans will be available at different “metal” levels: Bronze (which provides 60 percent coverage of costs), Silver (70 percent cost coverage), Gold (80 percent coverage), or Platinum (90 percent.) Small group employers who participate in the Exchange may review these plans and select one to make available to their employees, or they can even provide a mix of levels from which their employees can select.
The Exchange will also provide an on-line portal for purchasers to compare plans on an easy to understand “Apples-to-Apples” basis. They can compare prices, services, and ratings. The major incentive to small businesses to purchase their health insurance through the Exchange is a 50 percent federal tax credit. That credit is only available through the Exchange.
“This is probably one of the best things to come out of the ACA’S insurance mandates,” commented Janet Craig. “Small group employers are currently exempt from the penalties, but they still have to make their employees aware of plans available through the Exchange.”
The incentives to small businesses make participation in the Exchange particularly attractive. There have been critics who say that the ACA’s insurance mandates on business could result in job losses. Dr. Fernandez acknowledges that such a possibility exists. But there is another view that the efforts to make health care affordable for small employers and independent minded individuals could, theoretically, be more amenable to entrepreneurs.
Bottom line costs for running a business has always been an inhibitor to small businesses. It is not unreasonable to speculate that one of the long-term effects of the ACA is to provide a dis-incentive for large companies to add to their employee base through vertical integration. Rather, they might consider contracting out with smaller companies for supplies and services to keep their employee base small.
“There is nothing in the legislation that I can see having a detrimental effect on business entrepreneurship, whether in Kentucky or anywhere else. In fact, it may be to a company’s advantage to stay small and take advantage of what the Exchange can provide,” Dr. Fernandez said.
By Josh Shepherd