Louisiana’s coverage rejection means federal tax hike for some companies

Without expansion, many Louisianans will have no means to afford health insurance.

By Steve Spires

Millions of dollars in unnecessary tax penalties for some Louisiana businesses could be coming in 2015 due to Gov. Bobby Jindal’s ill-advised decision to block access to health coverage for hundreds of thousands of low-income workers.

A new report from tax preparer Jackson Hewitt found that businesses in Louisiana could be exposed to anywhere between $41 million and $62 million annually in tax penalties that would otherwise be avoided if the state expanded Medicaid coverage.

Making matters worse, many employers are likely not even aware that the state’s lack of action on health reform will end up costing them.

The federal health reform law, as originally approved, included two expansions of health coverage: Low-income adults would be covered by an expansion of state Medicaid programs; those with moderate incomes would be required to buy coverage through the health insurance marketplace, with subsidies available to keep costs affordable. In Louisiana, most Medicaid recipients currently are covered through taxpayer-financed private health plans under the Bayou Health program, but working adults are excluded.

When the Supreme Court ruled in 2012 that states were not required to expand Medicaid coverage, Gov. Bobby Jindal opted to leave nearly a quarter million Louisianans unnecessarily uninsured. That, in turn, set the stage for unintended consequences for workers and businesses.

To discourage companies from dropping their existing health plans, the new law says companies with more than 50 full-time employees that don’t offer affordable health coverage can face tax penalties of between $2,000 and $3,000 in 2015 for every employee who buys insurance and receives a subsidy through the insurance marketplace. But there would be no penalty for low-income employees who sign up for Medicaid.

Without Medicaid expansion, adults with incomes below the poverty line will be forced to rely on charity care, as they cannot buy coverage through the marketplace. But a second group of workers—those with incomes between 100 percent and 138 percent of the poverty line—will be caught in a trap. Without Medicaid expansion, these workers will have to use tax credits to buy coverage through the marketplace.  But if they happen to work for a company with more than 50 employees that doesn’t offer quality health coverage, those companies will have to pay tax penalties that they wouldn’t need to pay had Louisiana simply agreed to expand its Medicaid program.

It’s these penalties that Jackson-Hewitt estimates at up to $62 million a year—and completely avoidable.

The better solution for Louisiana’s economy is to expand Medicaid coverage to low-income workers. This could be done through private Bayou Health plans, by following our neighbor Arkansas’s example and using the new health marketplace to provide coverage, or through another innovative plan. States have wide flexibility to expand coverage as they see fit, even as the federal government covers 100 percent of the cost for three years, and never less than 90 percent after that.

Besides saving companies millions in tax penalties, it would also help create a healthier and more productive workforce for local employers. And by bringing nearly $16 billion into Louisiana’s economy over the next 10 years, it would create an estimated 15,000 jobs and boost business activity in every parish.

More delay, on the other hand, will only lead to more economic hardship. Working families, often headed by an uninsured adult, will remain exposed to crippling medical debt and bankruptcy, while unpaid medical bills will increase financial stress on doctors and hospitals. State taxpayers will also be on the hook to fill gaps in the budget for the privatized charity hospital system—gaps that would be filled with mostly federal dollars if the state expanded coverage.

Anyway you cut it, expanding coverage is a clear win for workers and business.