WASHINGTON—Employers could be liable for stiff financial penalties as a result of a portion of the U.S. Supreme Court's health care reform law ruling that invalidated massive federal sanctions against states that fail to expand eligibility for their Medicaid programs.

In addition, the Medicaid part of the ruling could result in a much smaller reduction in the number of uninsured U.S. residents compared with earlier projections, according to estimates by the Congressional Budget Office.

If those projections hold true, the effect of one of the big positives of the Patient Protection and Affordable Care Act for employers—a reduction of uncompensated care costs, which providers now shift to employer health plans—could be much smaller than employers had hoped.

“Hospitals could have more uncompensated care than anticipated, and there will be cost-shifting to those who have coverage,” said Barbara Gniewek, a principal with Pricewaterhouse-Coopers L.L.P. in New York.

Until recently, there has been little direct employer focus on the Medicaid part of the health care reform law ruling.

“It has been a sleeper issue,” said J.D. Piro, a senior vp with Aon Hewitt in Norwalk, Conn.

But that has begun to change.

“People are now talking about it, and we have been doing a lot of modeling for affected employers,” said Tami Simon, managing director-knowledge resources with Buck Consultants L.L.C. in Washington.

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As part of its decision upholding the health care reform's law core requirement that, starting in 2014, subjects most Americans to a financial penalty if they don't enroll in a qualified health care plan, the Supreme Court struck down a provision that would have denied all federal Medicaid funding to those states that did not expand their programs to cover those with incomes of up to 133% of the federal poverty level. State Medicaid programs now typically cover those with incomes up to 100% of the federal poverty level.

With the threat of a takeaway of federal funds removed, governors in about half a dozen states, including Florida and Texas, say they will not expand their Medicaid programs, even though the federal government initially will pay 100% of the cost of the expansion.

“I will not be party to socializing health care and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government,” Texas Gov. Rick Perry wrote last month in a letter to U.S. Department of Health and Human Services Secretary Kathleen Sebelius.

If states like Texas—which at about 25% had the highest uninsured rate of any state in 2010, according to the U.S. Census Bureau—refuse to expand Medicaid, employers, especially those with many low-wage workers, would feel that effect and face a much greater exposure to stiff health care reform law fines.

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That is due to the interaction of two health care reform law provisions. Under one provision, employers are liable for a $3,000 penalty for each full-time employee who is not offered “affordable” health insurance coverage. Coverage is considered affordable under the health care reform law if the premium for single coverage does not exceed 9.5% of household income.

The Internal Revenue Service has proposed a safe harbor under which the 9.5% premium affordability test would be tied to employees' wages rather than household income. In addition, the IRS has asked for public comment on whether the 9.5% affordability test also should apply to premiums for family coverage.

The $3,000 penalty for flunking the affordability test, though, is triggered only if affected employees are eligible for federal premium subsidies to buy coverage in a state health insurance exchange and use the subsidy to buy the coverage.

However, the health care reform law stipulates, if an employee is eligible for Medicaid, the employee cannot receive a subsidy to buy coverage in a state insurance exchange.

As a result, employers—regardless if premiums paid by employees fail the 9.5% affordability test—can't be liable for the $3,000 penalty if affected employees are eligible for Medicaid.

If governors carry out their threats not to expand Medicaid, employers—to avoid the $3,000 penalty—will have to keep employee premiums below 9.5% for employees whose incomes fall in the range of 100%-133% of the federal poverty level.

“For some companies, this is going to be a big deal,” said Jane Jensen, a consulting actuary with Towers Watson & Co. in Denver.

“This will put pressure on employers to offer” affordable coverage, Buck Consultants' Ms. Simon said.

Alternatively, employers could cut back employees' hours or hire more part-time employees. Health care reform coverage penalties only affect full-time employees; those working an average of 30 hours a week.

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Still, at this point, it is unknown how many states, if any, will decline to expand their Medicaid programs.

“States would be losing billions of federal dollars. It is really hard to fathom that would happen,” said Helen Darling, president of the National Business Group on Health in Washington.

“At this point, no one knows how many states will say no,” said Kathryn Wilber, senior counsel-health policy with the American Benefits Council in Washington.

On the other hand, one factor that could drive states to decline to expand their Medicaid programs is the fear that federal lawmakers could later reduce funding, leaving states stuck with the tab. Under the law, the federal government is to pay 100% of the cost from 2014 through 2016 of the expansion cost, with federal funding then gradually dropping to 90%.

Congress can “turn the spigot on and off. Ninety percent could become 50%, and then states are stuck with an additional unfunded benefit. That is a legitimate concern,” said Rich Stover, a Buck Consultants principal in Secaucus, N.J.