Tax penalty ahead

Feb. 08, 2014 @ 06:09 PM

This editorial appeared in the News & Record, Greensboro

North Carolina's political leaders are all about cutting costs for businesses, except when they're not.

Employers could pay more than $80 million in federal tax penalties next year, thanks to the state's decision to deny expansion of Medicaid coverage.

That comes from a new report by Jackson Hewitt Tax Service. Its key finding: "States that do not expand Medicaid for adults leave their large employers exposed to higher employer 'shared responsibility' tax penalties under the ACA."

That assertion might fuel more antipathy toward the Affordable Care Act by those who think it piles heavy burdens on individuals and businesses. Yet, it's here. It should be managed to gain the most benefit at the least cost. North Carolina is not doing that.

Part of the law expanded Medicaid coverage to adults under 65 whose incomes range from 100 percent of the poverty level to 138 percent. The federal government would pay all the costs for this expansion through 2016, 95 percent from 2017 through 2020 and then 90 percent, with the states paying the rest.

Gov. Pat McCrory turned down the deal last year, citing the later costs to the state and the ongoing problems of operating the Medicaid program effectively at its current size.

The state is struggling with Medicaid management. As for cost, however, Jackson Hewitt warns against overlooking the penalties employers will pay.

They come into play for businesses employing 50 or more full-time workers, some of whom earn low salaries and do not get medical insurance. If those workers enroll in Medicaid, the employer incurs no tax penalty. If they enroll in an insurance plan under the ACA and qualify for a premium subsidy, the employer can be assessed a tax penalty averaging up to $2,000 for each of those employees.

Jackson Hewitt calculated the potential cost to North Carolina employers in 2015, when this provision goes into effect, at $80 million to $120 million.

That's one calculation, and others may disagree with it. But it comes from a firm whose success depends on its ability to advise clients of their tax liabilities under various conditions. Did the governor consider these liabilities when he made his Medicaid decision? If not, he should take this information into account and reconsider now.

One of his top priorities has been to cut taxes and regulatory costs for businesses. This looks like a significant cost that's on the way.

There is the possibility that many North Carolinians won't sign up for coverage under the ACA, even if they would qualify for subsidies. That would spare their employers the penalty, although it would leave them at risk of the chronic poor health experienced by people who lack routine medical care. That doesn't make them better employees, parents or citizens.

A society and an economy are stronger when people are healthier. Expanding Medicaid coverage could help North Carolina achieve that goal. If that could spare employers tens of millions of dollars in tax penalties at the same time, our pro-business governor should explore that opportunity.