New Jersey has enacted a new fee targeting companies whose employees are covered by Medicaid, a move intended to bolster funding for the joint federal and state health insurance program for low-income residents. Other states are exploring similar initiatives as federal policy changes are anticipated to increase Medicaid costs and potentially reduce coverage.
Democratic lawmakers and governors view these fees as a means to ensure fairness, arguing that employers benefit when their lower-wage workers receive taxpayer-funded health coverage. The legislation, signed by Gov. Mikie Sherrill, will charge companies with at least 50 workers enrolled in Medicaid. The state budget anticipates raising $145 million this fiscal year from this program.
The fee structure in New Jersey varies, with companies facing an annual charge of $325 per employee and their dependents if they have between 50 and 249 Medicaid beneficiaries. This amount rises to $725 annually for employers with 500 or more Medicaid recipients.
California is also examining employer fees. A bill passed this week directs the state administration to propose options for such charges next year. State Sen. John Laird, a Democrat who sponsored the California proposal, cited a federal tax and policy law enacted a year prior as a significant factor driving the need for action. This law is expected to prompt increased state spending on Medicaid to compensate for federal changes. The Congressional Budget Office projects that this law could lead to over 10 million people becoming uninsured by 2034, requiring beneficiaries to document work or school participation.
Laird emphasized an equity concern, stating, "If you're a small business person in California, you are quite likely paying for health insurance for your employees. And through your taxes, you're paying for health insurance for some of the biggest employers in California. And that's not fair."
Similar legislative efforts have seen some progress in other states. Bills with comparable aims advanced in one chamber in Colorado and Oregon this year, though neither became law. A measure was also introduced in Washington. Connecticut Gov. Ned Lamont, a Democrat, has proposed a similar measure in his state, intended to be implemented within two years.
Business organizations have voiced opposition to the fees. Christopher Emigholz, chief government affairs officer at the New Jersey Business and Industry Association, stated, "The fact remains that many job-creators are still going to be penalized for something they have no control over." He added, "If an employee declines an employer-provided health plan because they’d rather be on Medicaid, it is unfair to penalize the employer for that employee’s decision."
Some policy organizations on the left have also expressed concerns. Gideon Lukens of the Center on Budget and Policy Priorities suggested that such fees could potentially discourage companies from hiring low-income workers or single parents, and influence decisions about layoffs or business locations. He also posited that employees might be less inclined to enroll in Medicaid if they believe it makes them less attractive to employers, noting, "Usually, when I see a tax on something it’s going to discourage whatever being taxed."
New Jersey's legislation includes provisions to mitigate some concerns, exempting temporary, seasonal, and part-time employees, and prohibiting employment decisions based on an employee's Medicaid status.
The concept of charging companies with Medicaid-covered employees is not entirely new. Massachusetts implemented a charge on employers for workers covered by Medicaid or state-subsidized plans in 2018, though it expired and was not renewed. A prior attempt in Maryland in 2006, which initially affected only Walmart, was challenged in court and overturned by a federal judge who found it conflicted with federal law governing self-insured employee health plans. Current proposals aim to circumvent such legal challenges by avoiding direct reference to employer health plans.