Why the Map Matters in Determining Obamacare Costs

Employers in some states will see more choices and lower bills when mandated medical coverage begins.

How will employers fare when the main provisions of President Obama’s sweeping health insurance law kick in on Jan. 1, 2014? The answer depends largely on where they’re located.

One big factor: Medicaid availability. The District of Columbia and 23 states will expand eligibility for the program to include people with annual incomes of $32,500 for a family of four ($15,860 for singles).

The states: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Dakota, Oregon, Rhode Island, Vermont, Washington and West Virginia. Michigan will probably expand eligibility as well, while Indiana, Maine, New Hampshire, Ohio, Pennsylvania and Tennessee are on the fence.

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The 20 remaining states won’t budge for now but are likely to follow suit in a few years.

The expanded Medicaid rolls can make a difference for some employers.

For starters, it’s a possible premium-saver for those with low-paid workers who will be eligible for the government program under the new guidelines. Because Medicaid has no premiums, no deductibles and few or no copayments, some workers may choose to enroll in it rather that participate in the employer-sponsored plan at work.

Plus, health care costs may actually rise more slowly in states with expanded enrollment because there will be fewer individuals without medical insurance. Hospitals and other providers now jack up charges for those with insurance to offset the losses they incur for treating and caring for those without coverage.

A second difference that will matter to employers: whether states have their own exchanges to sell insurance or rely on the federal government to operate the exchanges.

In the 16 states with their own exchanges, workers for small firms that offer coverage even though they’re not covered by the mandate will be able to choose from multiple options. There’s an advantage to employers, too: They’ll be able to write a single check and deal with a single administrator.

That won’t be the case for states that start out allowing Uncle Sam to run their exchanges. The federal system just isn’t set up yet for that level of complexity. In those 34 states, small employers that opt to provide insurance bought through the exchanges will have to pick a single plan for 2014. More choices likely will be available from the federally run programs in 2015.

Other questions that will help shape employers’ experiences, especially early on:

How aggressive will states be in negotiating with insurers in their exchanges? Many are approving all carriers that meet basic criteria. But California, Massachusetts and others are making participating insurers meet higher standards to help hold down costs.

How many insurers have served the state in the past? Competition may lag in Alaska and Louisiana, for example, where single carriers dominate the market.

And have states already prevented insurance underwriters from basing premiums on overall health, preexisting conditions and other factors? Maryland, Michigan, New Jersey and New York are among states where such regulations have been toughest. Employers there may see premium costs come down.

Martha Lynn Craver
Associate Editor, The Kiplinger Letter