Excise tax could add $39 billion to Medicaid cost over 10 years, trade group says

Federal and state governments are likely to pay the bulk of the new premium taxes imposed on Medicaid managed-care companies.

A trade group for the Medicaid insurers, which commissioned a new report on the tax, says beneficiaries could see access to services diminished or disrupted as a consequence of the excise tax, which is expected to raise $8 billion in 2014 and $100 billion over the next decade to help fund the Patient Protection and Affordable Care Act.

The tax will add $36 billion to $39 billion to the cost of Medicaid over 10 years, according to the report by the actuarial firm Milliman paid for by Medicaid Health Plans of America. The national trade association is lobbying for the tax to be repealed or delayed.

Jeff Myers, the organization's president and CEO, warned that states that aren't yet using managed care in their Medicaid programs may shy away from it or lean toward not-for-profit companies, which are exempt from the tax if they get at least 80% of their revenue from government programs.

“States should be choosing plans based on which ones can provide the best options for beneficiaries, not on whether or not they'll have to pay a tax or not,” Myers said. He also suggested some insurers will get out of the Medicaid business if states respond by paying thinner margins.

But others say neither Medicaid beneficiaries nor insurers are likely to see any impact from the tax whatsoever.

“(The tax) is neutral to the plans—it doesn't help or hurt them,” said Dan Mendelson, CEO of consulting firm Avalere Health. Representatives from several state Medicaid agencies, including California, Iowa and Michigan, likewise said they expect no impact on Medicaid beneficiaries.

Today, 37 states and Washington contract with Medicaid managed-care plans, according to the trade association. A 1997 law requires that payment rates for Medicaid managed-care contractors to be actuarially sound, meaning they must cover all medical costs, administrative costs, taxes and fees a plan will be responsible for.

In Indiana for instance, the federal Medicaid tax will cost the state $10 million in state fiscal year 2015, according to the state agency that runs the program.

“It is completely unnecessary, takes away dollars that could be spent on covering more Hoosiers and providing better benefits, and was likely not understood or foreseen by the authors of the Affordable Care Act,” said Jim Gavin, director of communications at the Indiana Family and Social Services Administration.

Some states say that their taxpayers will ultimately foot the bill.

“The cost of this ACA health plan tax will have to be passed on to taxpayers according to our actuaries,” Tony Keck, director of the South Carolina Department of Health and Human Services. “It is a wonderful 'who's paying whose bill?' shell game the federal government is playing with the ACA.”

Medicaid managed-care companies in some areas should brace themselves for paying some upfront costs because of the tax because not all states have committed to rolling in the tax into their rates. Representatives from Arizona, Florida and Texas said it's too difficult to predict the cost of the tax and plan to reimburse companies after it's levied on them.

The Small Business and Family Relief Act, introduced by Reps. Ami Bera D-Calif., and Charles Boustany R-La. (both physicians), would delay implementation of the premium tax for two years, which Myers said would give Congress more time to assess any of the unintended consequences.

Follow Virgil Dickson on Twitter: @MHvdickson