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Employers Facing Strain of Higher Health Care Costs

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Employers are beginning to turn their attention to the possibility of paying higher health care costs if states decide not to expand their Medicaid programs in 2014 under the Patient Protection and Affordable Care Act (PPACA). The Medicaid expansion was originally mandated by PPACA but later made optional by the Supreme Court in its June 2012 ruling on the health care reform law. As noted in Monday’s Wall Street Journal, many employers in states that opt-out of the Medicaid expansion could incur an annual penalty under PPACA if they don’t provide health care coverage for lower-paid full-time employees who would otherwise have been eligible for Medicaid coverage.

What the WSJ article is describing at its core is the issue of shifting health care costs from the public sector to employers. States and the federal government have made repeated cuts to Medicaid and Medicare in an effort to reduce spending, ultimately resulting in higher costs for private payers as hospitals and physicians seek to make up the difference from too-low public reimbursements. According to a 2008 Milliman report, the total annual cost-shift to private payers from Medicaid is nearly $40 billion. Further, Milliman estimates that if there was no cost-shift from public to private payers, commercial hospital and physician costs would be 15% lower.

Inadequate funding of public health care programs, like Medicaid, impacts the private sector economy and puts additional strain on American businesses. As states and the federal government continue to debate Medicaid financing decisions, they should focus on preserving sufficient program funding so America’s employers can in turn focus on creating jobs.