ObamaCare slaps states with $15 billion in new costs

By Grace-Marie Turner

Thirty-six states that rely on private managed care programs to provide medical services to all or some of their Medicaid recipients are facing an added ObamaCare tax.

According to a report by Milliman consulting actuaries, states that contract with Medicaid managed care plans face up to $15 billion in added costs over 10 years for their share of the law’s tax on private health insurance.

States will pay even if they strongly oppose ObamaCare and are refusing to establish health insurance exchanges or expand Medicaid.

The health law imposes an annual tax on private health insurance plans – a tax designed to recoup what some call their “windfall” from the millions of new customers they could gain because of the law.  The tax on health insurers was expected to raise a total of $8 billion in 2014 and as much as $150 billion over the next 10 years.  It is one of 20 designed to fund ObamaCare’s expanded coverage.

Most Medicaid managed care organizations (MCOs) are considered private plans and therefore are subject to the new tax.  But this punishes states that are trying improve their Medicaid programs:  They are working to make Medicaid more efficient and save money by contracting with private managed care plans to provide medical care to recipients. States that stay with the antiquated fee-for-service Medicaid program escape the levy.

Insurers have rightly argued that this tax will be passed along in the form of higher premiums.  Milliman calculates the tax will increase Medicaid premiums by up to 2.5%.  In recent years, states have allowed premium increases of only 1 or 2% annually, with some states actually cutting payments to plans, according to the report.

If Medicaid HMO plans are required to pay the new tax out of their profits, many would exit the market rather than operate at a loss. Further, the fee is considered an “excise tax” which is not deductible from corporate income taxes, amplifying its impact.

The Milliman report estimates the ObamaCare health insurer fee will increase Medicaid managed care premiums between $37 billion and $42 billion over ten years.  Because both the states and the federal government share in funding Medicaid, the states’ collective share is expected to be between $13 and $15 billion.

Milliman explains this means that the federal government is taxing itself as well as state governments.  The feds get their money back because all of the revenues from the health insurance tax accrue back to the federal government.

But the states are left to figure out how to pay their share of the ObamaCare bill – either by further clamping down on payments to Medicaid plans or cutting other state services.

Adding to the constraint: A boost in payments to primary care physicians treating Medicaid patients expired January 1, putting added pressure on states to fill the gap. A study by the Urban Institute estimates that primary care doctors who have been receiving the enhanced payments will see their fees for cut by an average of 43%.  Millions of new Medicaid enrollees could face provider shortages if fees revert to pre-ACA levels.

The need to allow a boost in payments to account for the new tax as well as pressure to continue the increase in Medicaid primary care rates puts added pressure on already burgeoning state Medicaid budgets.

While Medicaid managed care is a low-margin business, most states allow plan operators a reasonable profit margin to encourage their participation.  Joseph Swedish, chief executive officer at WellPoint, explained in a conference call with investors earlier this year that states “understand the need for a sustainable Medicaid program,” and passing along the fee “is part of sustainability.”  Most states consider taxes to be reasonable and unavoidable costs of doing business and incorporate them into payments to the plans.

The Obama administration has not provided much-needed guidance to the states about how to handle fee negotiations with managed care plans involving the added taxes.

About 70% of Medicaid managed care premiums were paid to for-profit MCOs in 2010. In 2010, approximately 50% of all Medicaid recipients were enrolled in Medicaid managed care plans, rising to more than 60% this year.

Punishing states for using Medicaid managed care is yet another ObamaCare attack on private health plans.

According to the Milliman report, Florida could face added costs of up to $1.4 billion over the next ten years to fund ObamaCare, Pennsylvania, $1.3 billion, and Texas, $1.1 billion.  Tennessee, where Medicaid recipients are fully enrolled in managed care, could face added costs of $731 million over that time.  Maryland will need to come up with $680 million, and Louisiana with $787 million.  States that don’t contract with Medicaid managed care plans will not have to pay.

The tax is due regardless of whether or not a state decides to expand Medicaid.  The worst decision would be to scrap their Medicaid managed care plans to avoid this new ObamaCare tax.  This is one more example why the best solution is to eradicate all of the ObamaCare taxes — along with the rest of the law.

Posted on Forbes, January 5, 2015

SHARE THIS ARTICLE

About the author