Not expanding Medicaid will cost SC small businesses

The State
February 21, 2013

By FRANK KNAPP JR. — Guest Columnist

Columbia, SC — The debate is underway over whether to expand the federal-state health insurance program, Medicaid, to more uninsured low-income South Carolinians.

Opponents of expansion, made possible by the Affordable Care Act, or Obamacare, are led by Gov. Nikki Haley’s director of Health and Human Services, Tony Keck, who runs the state’s Medicaid program. Mr. Keck’s public position is that the issue is not about cost but about making more of our citizens healthy. He argues that expanding Medicaid is an inefficient way of achieving that goal.

In December, I attended a forum where Mr. Keck explained that having health insurance was not a good predictor of health outcomes. Therefore the state would do better in promoting health by concentrating on education and jobs while encouraging our citizens to make better personal choices about their behavior.

But in response to a question I posed, Mr. Keck admitted that a low-income person’s health would be better if he had Medicaid than if he did not. “But at what cost?” he quickly added.

Mr. Keck’s almost reflexive response reveals that the tactic of arguing that Medicaid isn’t the best way to improve health is really an effort to misdirect the debate away from the real issue — cost.

If we remove the partisanship over Obamacare and admit that improving the level of education, size of paychecks and behavioral decisions of the state’s low-income citizens is an admirable but daunting goal that will take decades to achieve, the primary objection to expanding Medicaid to improve health today is cost.

Opponents of expansion say that the state can’t afford its eventual 10 percent share of the Medicaid expansion. Mr. Keck’s actuary projects that the cost to the state could be up to $1 billion by 2020.

Proponents of expansion point to a study that projects that economic activity in the state will increase by $3.3 billion and 44,000 jobs will be created from expanding Medicaid. This increase in economic impact would result in the state actually taking in more revenue than it would spend on the expansion through 2020, contradicting Mr. Keck’s analysis. After 2020 the state’s budget would experience a small net loss due to expansion.

Unfortunately, this cost debate has largely overlooked an important factor associated with not expanding Medicaid — the cost to our small businesses.

Many low-income employees work for our state’s small businesses, and expanding Medicaid will result in reduced costs to these employers.

First, there is a significant cost to a small business when workers are not on the job because they are sick or have to care for family members who are ill. Even employees who don’t miss work when they are sick are less effective. Workers with health insurance for themselves and their families miss less work due to illness and are more productive. Clearly expanding Medicaid to cover low-income workers will economically benefit their small-business employers.

Second, small businesses that want to offer health insurance to employees will find it more affordable under a Medicaid expansion. Small employers with Medicaid-eligible workers will have fewer employees to cover on a private group health plan and thus have less in premiums to pay. In addition, with expansion the cost of the employee’s private insurance will drop due to a reduction in the hidden tax on every health insurance policy, which pays for the uncompensated care for the uninsured. Based on projections by Milliman, the actuarial firm used by Mr. Keck for his cost projections, the reduced premiums could be up to $1,000 per year for family coverage.

The third benefit of a Medicaid expansion involves the requirement of the Affordable Care Act that businesses with 50 or more employees either offer health insurance or pay a penalty. Workers on Medicaid are not counted toward the total number of employees, so the Medicaid expansion would mean that even many small businesses with 50 or more employees could avoid paying a penalty for not offering health insurance.

While our state officials continue to debate the cost of expanding Medicaid, that debate must include the cost to small businesses for not doing so.

Mr. Knapp is the president and CEO of the S.C. Small Business Chamber of Commerce; contact him at Sbchamber@scsbc.org.

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