Obamacare

Employers face tax hit in states with no Medicaid expansion

The decision by 25 states not to expand Medicaid coverage under Obamacare could cost some employers more than $1.5 billion in new taxes starting next year, a new analysis reveals.

That tax hit might come as a shock to many of those businesses unaware of their exposure to the penalty—which will kick in if their employer-offered health plan is deemed too expensive and workers then buy private, subsidized Obamacare insurance.

"Paradoxically, state government efforts to constrain Medicaid cost growth in and after 2017 may lead to higher net taxes for employers in such jurisdictions beginning in 2015," said the analysis by Jackson Hewitt Tax Service.

The reason is complicated, like much of Obamacare.

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"There's three words I use to describe this: esoteric, tedious and boring," said Brian Haile, Jackson Hewitt senior vice president for health policy and co-author of the analysis entitled "State Medicaid Choices and the Hidden Tax Surprises for Employers."

But it also is "incredibly expensive to get wrong or ignore," he added.

How expensive for employers? Between $2,000 to $3,000 per worker.

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"Each employer may face only a penalty for two or three employees, and you say, 'That's not very much.' But when you aggregate that across the state, you're talking about tens of millions of dollars," Haile said.

Employers "need to anticipate the fact that you're going to be incurring that kind of liability, and you've got to be reserving for it," he said.

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Jackson Hewitt found that employers in Texas, one state not expanding Medicaid, could be on the hook for up to nearly $400 million in new taxes each year, beginning in 2015. Florida employers could pay as much as $253 million in new taxes, and North Carolina employers as much as $120 million.

The cumulative hit to employers in the 25 states could be between $1.03 billion and $1.55 billion, Jackson Hewitt found.

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Diane Rowland, a Medicaid expert at the Kaiser Family Foundation, told CNBC.com, "All of us have said there's a cost to not expanding" Medicaid.

"This is the employer side being able to quantify the effect," Rowland said. "I think as some of these economic arguments come out, the harder it is for some of these political arguments in states where [Medicaid expansion] is still under consideration" to hold sway, she said.

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The Affordable Care Act, as written, originally mandated that the government-run Medicaid health-care program for the poor be expanded nationally to include previously ineligible adults who earned less than 139 percent of the federally poverty line. Those who qualify are mostly low-income earners who aren't elderly or disabled. But the 2012 Supreme Court decision upholding Obamacare's legality said Medicaid eligibility expansion would be left up to individual states.

Twenty-five states are expanding Medicaid eligibility. There, the federal government will foot 100 percent of the increased costs of expansion until 2017, when its share of costs drops to 95 percent, and then to 90 percent from 2020 on.

Governors and legislatures in the 25 states not expanding Medicaid have cited what they believe will be added costs from covering more people under the program, which could require tax increases, and the fear the federal government will renege on its promises to pay the lion's share of costs for not expanding the program. However, many analysts said another motivation is adamant opposition to President Barack Obama and his signature health-care law, as well as the presidential aspirations of some Republican governors.

The tax impact related to Medicaid expansion issue will affect employers with more than 50 full-time workers who don't offer health insurance considered affordable as of 2015, when the mandate to provide such coverage begins.

If those health plans cost workers more than 9.5 percent of their family income, or if the health plans pay for less than 60 percent of their medical costs, employees can go to the government-run Obamacare exchanges such as HealthCare.gov to obtain health coverage. In states expanding Medicaid, people who earn less than 139 percent of the federal poverty line, about $15,000, can qualify for Medicaid coverage without their employer incurring a tax penalty for them.

But in states which are not expanding Medicaid, employees at such companies who earn between 100 percent and 139 percent of the federal poverty level—between $11,600 and $15,000—will be eligible for government subsidies to buy private Obamacare insurance from the exchanges.

If those workers use those subsidies to do so, their employers must pay a tax penalty of up to $3,000 per worker. The penalty is capped at $2,000 multiplied by the total number of full-time workers, minus 30.

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Haile said that when he's tried to explain the potential tax hit to employers, some of them assume the penalty is the same for them as the lowest fine for individuals who forgo health insurance this year: $95.

When he tells them the penalty for companies, they often yelp, Haile said: "'What do you mean, $3,000?'"

"You really get the attention of business folks," Haile said.

His analysis notes that for states not currently expanding Medicaid, "any projections of the 'net' costs of Medicaid expansion should also reflect the very real costs of the shared responsibility tax penalties to employers" in those states.

—By CNBC's Dan Mangan. Follow him on Twitter @_DanMangan.