Sally Pipes: "Why Are States Taxing Companies for Hiring Poor People?"

The following is an excerpt from an article by Sally Pipes, Founder & Chair of the Benjamin Rush Institute, published in Newsmax. Click here to read the full article in your browser.

The Garden State has become the first state to penalize companies for employing Medicaid beneficiaries. Under legislation signed June 30 by Gov. Mikie Sherrill, D-N.J., companies with at least 50 employees will pay an annual fee between $325 and $725 for every worker or dependent of a worker enrolled in Medicaid.

California lawmakers have approved legislation that directs the state to come up with options for New Jersey-style taxes on employers. Democrats in Washington and Connecticut have also considered similar proposals.

Supporters argue that profitable employers shouldn’t shift the cost of covering their workers onto taxpayers.

It’s an intuitively appealing argument. But taxes change behavior. A tax on employing Medicaid recipients is, in effect, a tax on hiring low-income workers.

Employers will respond accordingly. Medicaid now covers more than 74 million people nationally. That’s more than one in five Americans.

The program accounts for roughly one-third of state expenditures and costs taxpayers a total of $931 billion a year.

Almost 20 million of those people gained coverage through Obamacare’s expansion of the program for able-bodied adults earning up to 138% of the federal poverty line — $29,863 for a couple.

Most states embraced the expansion because Washington promised to cover 90% of the cost of their benefits indefinitely. That’s more than states receive from the feds for many of Medicaid’s legacy enrollees — among them the disabled, pregnant women, and children.

To finance their share of Medicaid costs, states have long relied on funding maneuvers that maximize federal matching dollars.

For example, they tax insurers or healthcare providers and then return much of that money through higher Medicaid reimbursements.

Those higher payments attract additional federal funds.

Many of those funding games will come to an end next year under the tax-and-spending law enacted last summer by Republicans in Congress.

Hence, the search in some states for more Medicaid money.

Big companies are a tempting target. But New Jersey, California, and other states considering these policies are unwittingly hurting the very people Medicaid is supposed to help.

Businesses don’t simply absorb new costs. They adjust.

If hiring a Medicaid recipient becomes more expensive than hiring someone else, employers will look for ways to avoid that cost.

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