Obamacare Pt. 2: If You Like Your Plan, You Can Keep It (Or Not…)

RULES, MANDATES, TAXES, PENALTIES: ARE WE “FREE?”

If you have yet to read my post from Sunday, January 19th, I highly recommend you do so before reading today’s post. You will have more of an insight into the Individual Mandate (“IM”) and how you could possibly be taxed by Obamacare for failure to purchase healthcare under the new law. You can find “Obamacare Pt. 1: Steal from the Rich, Give to the Poor” at http://wp.me/p49Dtk-aa. If you have read this and now semi-understand the IM, today I will be talking about key parts of Obamacare that seem to coincide: the Employer Mandate & Expansion of Medicaid. Let’s start with the Employer Mandate.

EMPLOYER MANDATE BASICS.

Similar to the IM, the Employer Mandate (“EM” for simplicity) is a per-month fee for employers with over 50 full-time equivalent employees who do not provide healthcare coverage to such employees.  The EM is also considered a “shared responsibility fee” (like the IM) and is a tax penalty to ensure that applicable large employers are providing healthcare to employees.  If the employer does not have at least 50 full-time equivalent employees, these penalties do not apply (in fact, some small businesses may qualify for a health insurance tax credit). If an employer does have at least 50 full-time equivalent employees that are not provided health insurance, and at least one of the employees receives a tax credit or cost sharing subsidy, then the employer will be taxed $2,000 per employee not covered (with the first 30 full-time employees exempt from this calculation). This penalty increases each year with the growth in insurance premiums.

What happens when one of these employers provides healthcare insurance but it is not affordable to the employee?  There are two different instances in which an employer could be penalized if this occurs:

(1) If the employer provides healthcare coverage but it does not cover 60% (bronze level insurance) of healthcare expenses, then the employee has the opportunity to obtain different coverage in the Healthcare Exchange and receive tax credits or subsidies. If this happens, the employer of that employee is charged $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees (minus the exempt 30). This penalty, like the penalty above, is increased each year with the growth in insurance premiums.

(2) Additionally, if the employer provides healthcare coverage but the employees have to pay more than 9.5% of family income for the employer coverage, the employees have the same opportunity to join the Healthcare Exchange and receive tax credits or subsidies. If this happens, the employer of that employee is charged $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees (minus the exempt 30). This penalty, like the penalties above, are increased each year with the growth in insurance premiums.

So starting in 2015**, employers that have over 50 full-time equivalent employees will have to pay this per-month fee as 1/12 of the $2,000 or $3,000 amount for either not providing affordable healthcare insurance or any healthcare insurance at all.

FULL-TIME V. FULL-TIME EQUIVALENT.

Note that I said “full-time equivalent employees” (“FTEs” for simplicity) when describing the type of employees to which the EM applies. FTEs include those at full-time status (30 hours or more per week) plus the combined number of part-time employees divided by 30 hours. A list of those that are not included in the FTE calculation are seasonal employees, independent contractors (1099 filers), and business owners. On top of this, in order to determine the number of FTEs for a particular month (which is necessary under Obamacare), the employer must combine the number of hours of service for all employees not employed at least 30 hours per week for a month and then divide that number by 120. This calculation results in the number of FTEs for that calendar month. I do not want to go too far into this calculation, as it is not the basis of my argument (which I promise I have an argument, you just have to wait until the Medicaid section). I will leave you with an example of how this calculation would work.  The Washington Post’s article entitled “Small Business Advice: How to Count Full-Time and Part-Time Employees Under Obamacare” explained this calculation in more simpler terms than I ever could:

For example, if the aggregate number of hours for all employees who do not work on average 30 hours per week is 1200, the number of FTEs for that month would be would be 10 (1200/120). The employer would then add those 10 FTEs to the number of employees who are employed on average at least 30 hours per week, to determine if the employer is an “applicable large employer.”

The term “applicable large employer” is based on a controlled group. If a corporation owns a subsidiary then that subsidiary’s employment would count toward the controlled group’s employment as a whole. In short, all subsidiaries (i.e., sister companies, daughter companies) owned by a holding company (i.e., parent company) will become one with the parent company for purposes of the EM under Obamacare.

WHO MUST ACTUALLY BE COVERED UNDER THE EM?

The EM covers FTEs. The actual coverage provided by the companies does not cover FTEs. In order to make a company an “applicable large employer” under Obamacare, the amount of employees must be 50 full-time equivalent employees. In order to make a company provide coverage under Obamacare, 95% of the full-time employees must be provided affordable healthcare coverage. Thus, FTEs do not matter for coverage purposes. FTEs only matter when trying to prove a company’s “applicable large employer” status. Got it? Good.

Even though the EM does not start until 2015, the numbers that matter for the EM start in 2014. The EM is based on a look-back period of 3 to 12 months. Therefore, employers must start calculating their full-time employee and full-time employee equivalent base now. A problem for companies is the tax deduction associated with the EM. The problem? There is no tax deduction. If the employer provided coverage for all full-time employees through an Employer Shared Responsibility Plan, then the employer contributions to employee premiums would be tax deductible. For some companies, the costs might outweigh the benefit. That being said, it might be better to take the hit on taxes rather than take the tax deduction for providing all employees with coverage.

To anticipate the inevitable tax, most large employers have reduced full-time and part-time employees to under 30 hours per week. According to Obamacare statistics, 10,000 companies out of 6,000,000 will actually need to provide insurance to full-time employees or pay the EM. That statistic looks wonderful on paper, but it does not actually provide the number of employees that are currently employed by those 10,000 companies. Large conglomerates will be reaping a large tax which will result in reducing the pay and hours for the average worker making just above minimum wage. I am not sure how this will be beneficial to our economy. Obamacare is digging a grave for job growth and the individual’s potential to make a living. Whether it be through the IM or EM, the government is sucking the life out of the economy one tax dollar at a time.

TRANSITIONING FROM THE EMPLOYER MANDATE TO MEDICAID

Medicaid is a joint funded program by the federal and state government to provide healthcare to low-income Americans. Obamacare provides for the expansion of the Medicaid program by increasing the Federal Poverty Level (FPL) to allow for additional people to receive healthcare.  States can opt into the Medicaid expansion or opt out and keep the Medicaid program the same.  So, how does Medicaid apply to large employers within a state? Employers are not penalized for employees signing up for Medicaid. Employers are penalized for employees receiving tax credits or subsidies for healthcare policies (as discussed above). Without the expansion of Medicaid, employees within a certain percentage of the FPL are bound to turn to tax credits and subsidies. Employers will be responsible for a larger percentage of tax associated with these costs.

Great. Why does this matter to you? Tennessee is one of the states that chose not to expand Medicaid. Tennessee is not the only state that did not expand Medicaid. If you are reading this and located in a different state, I have included the states and their current decisions below:

Expanding: AZ, AK, CA, CO, CT, DE, D.C., HI, IL, IA, KY, MD, MA, MI, MN, NV, NJ, NM, NY, ND, OH, OR, RI, UT (just occurred 3 days ago), VT, WA, WV

Not expanding: AL, AK, FL, GA, ID, IN, KS, LA, ME, MS, NE, NC, OK, SC, SD, TN, TX, VA, WI, WY

Still Considering: MO, NH, PA

There are plenty of reasons why Medicaid is good and bad for our country as a whole. Let’s take a look at the expansion of Medicaid under Obamacare and determine possibilities as to why Tennessee avoided expansion.

EXPANDING MEDICAID BASICS.

Medicaid is a joint program funded by both the federal and state governments to provide healthcare to low-income Americans. Every state has it’s own eligibility requirements (on top of those federally mandated) as to who qualifies for coverage under Medicaid. In order to qualify for Medicaid, you must be a member of an eligible group (e.g., children, pregnant women, people with disabilities, elderly) and you must meet the financial eligibility requirements for that eligible group. Depending on your financial situation, it could be the difference between affording insurance and receiving Medicaid.

Prior to Obamacare, all states were federally mandated to cover pregnant women and children earning under 133% of the FPL. Children are also covered under the CHIP (Children’s Health Insurance Plan) program, which works closely with Medicaid. Parents and adults without dependent children were not covered in most states, as they did not fall below the financial eligibility requirement threshold of making under 100% of the FPL. Seniors gain a large advantage through Medicaid.  If a senior qualifies for Medicaid then he or she also qualifies for Medicare Part D (prescription drug) coverage. Medicaid also covers benefits not covered under Medicare, such as nursing home and personal care services.

Under Title II of Obamacare, the law calls for an expansion of the Medicaid program and provides healthcare to all Americans earning under 138% of the FPL ($15,281 single individual with no children; $23,550 for a family of four). The federal government picks up 100% of the Medicaid tab in the first year. After this and through the year 2020, the federal government provides 90% and the state picks up the remaining 10%.  This is one of the temptations to the states in providing for the expansion. If the federal government is going to pick up most of the tab, why not agree to an expansion and allow for more people to be covered under Medicaid? The question I would rather you ask is “Where is the government getting the money to pick up this tab?” Is it the EM, the IM, a combination of both, China? I am not sure that the government knows where this money is going to come from at all. It seems our country’s deficit might continue to rise if many states continue down a path of expansion.

Every state does not have to agree to expand Medicaid. The federal government wanted to make Medicaid expansion mandatory, and it provided that states must adhere to the expansion or lose all existing Medicaid funding. Twenty-six states sued and the Supreme Court agreed that this provision was too coercive. The Court claimed that the “all-or-nothing” provision should not apply at all. The expansion was to be optional and at the discretion of each state – without the worry of losing money for existing Medicaid. So, as you saw from the list above, most states opted in and other states opted out.

PROS AND CONS OF EXPANDING MEDICAID.

There are many different pros and cons provided by both sides (Republican and Democrat) as to why Medicaid expansion is either good or bad for this country. I am going to list out a few for you so you can make your own decision.

Pros:

(1) It provides revenue to the state choosing to expand Medicaid. Because the state chooses to expand, the state will receive more funding to support the Medicaid program. This will provide for an influx of funding for the state.

(2) It will result in savings to the state choosing to expand Medicaid. Some states claim to be able to either generate a revenue or save a lot of funds by hosting the expansion. One of these states is Michigan, though I am unsure as to how it is saving money while it’s capital of Detroit just filed for bankruptcy. Either way, many other states are claiming that by expanding the coverage it will save a lot of funding that is normally appropriated to uninsured healthcare recipients down the road.

(3) Rejecting the Medicaid expansion means that other states will receive more money. By rejecting the money given to them, states are handing additional funding over to states that do choose to expand Medicaid.

Cons:

(1) Accepting federal funding for expansion of Medicaid results in further debt for our country. No explanation needed.

(2) There is a potential trade-off between managing costs and limiting access to healthcare. When a state manages costs of healthcare (i.e., limiting reimbursements to healthcare providers) there is a trade-off that limits access to healthcare. Medicaid is already becoming a trade-off in many state budgets, as it has taken over priorities such as education, emergency services, etc.

(3) Higher taxes reduce economic growth. If states do not want to balance spending programs then states must generate revenue through taxes. Taxes reduce economic growth. Most states cannot afford any type of stunt in economic growth at this time.

My POV: This will actually cost more than states are expecting. States might see savings in the beginning, as federal funding will be at 100%. After this, Medicaid spending will catch up with savings. Additionally, any rejection for expansion does not increase the amount of money given to another state that might choose to expand. The federal portion of Medicaid is based on a formulated calculation. Those funds rejected by states unwilling to accept the expansion of Medicaid do not go into a general fund for redistribution. States that do expand Medicaid are actually perpetuating the fiscal crisis in our country thereby leading this country into a further deficit.

WHAT SHOULD HAPPEN TO MEDICAID?

In my opinion, Medicaid expansion is not smart.  Medicaid is struggling to provide healthcare to those currently on the program today.  I know that it sounds like a wonderful idea to add those that are under the FPL percentage to Medicaid.  The underlying problem is not where the FPL should be set. The underlying problem is fixing Medicaid. I would push for Medicaid reform and do away with the expansion entirely. Here are a few other reasons I like Medicaid reform over expansion:

(1) Lesser dependence by the states on federal government funding. It is bad policy to mix state and federal funding to the point of no return. This is bad policy and this is bad healthcare policy. There is no need to sustain a failing program that needs to be fixed.  Pumping this program with billions of (soon to be) wasted dollars is not the answer.

(2) Review eligibility levels and scale down where necessary. As mentioned in the beginning of the Medicaid discussion, states are allowed to extend eligibility past the federally mandated eligibility requirements. Most states have done this and the amount of funding has continued to climb over the years. This funding could be used to supplement education, emergency services, criminal justice, etc. In order to have the funding to balance the state budget, state officials should focus on bringing the original purpose back to the Medicaid program.

(3) States should come up with an alternative to Medicaid. Medicaid has always been defined as a “one-size-fits-all” program. You wouldn’t want to wear a “one-size-fits-all” pair of jeans would you? Everyone is different, just like every state is different. Every state has a different population with different needs. Thankfully the states know what their constituents need through the failing program of Medicaid. The states should be able to come up with a program that is tweaked to provide for their citizens’ needs.

FINAL THOUGHTS.

I highly recommend that you do your own research on this law. Everyone has different opinions about it but not everyone understands why they have that opinion.  Become educated and stay informed on the issues that are going on around you.

I would love to hear your perspective on anything I have talked about today, last week, or any week before this. I appreciate you for reading this post and hopefully you will continue to read my blog.  I plan to tackle Obamacare’s changes to Medicare next week – you will not want to miss it! Thanks again!

**As of 2/10/2013, this date has changed to 2016 for medium-sized businesses. More information will be provided later.

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