New Jersey to Charge Employers for Workers on Medicaid as Other States Weigh Similar Fees

New Jersey has enacted a new fee on certain employers whose workers or dependents receive Medicaid, placing the state at the center of a broader legal and policy debate over how far states can go in collecting health care-related revenue from businesses.

Gov. Mikie Sherrill signed the measure June 30 as part of a state budget plan that counts on raising $145 million this year from the new program. The law applies to employers with at least 50 workers or dependents enrolled in Medicaid, the joint federal and state health insurance program for lower-income residents.

Companies will be billed for each covered employee and dependent receiving Medicaid benefits. The annual fee starts at $325 per person for employers with 50 to 249 Medicaid beneficiaries, rises to $525 for employers with 250 to 499 beneficiaries and reaches $725 for employers with at least 500.

Supporters describe the measure as a response to cost shifting, arguing that taxpayers help cover health care costs for some workers who are employed by companies large enough to offer workplace coverage. Business groups object that employers may be charged even when a worker declines a company health plan and remains on Medicaid.

Some left-leaning policy groups have also raised concerns that a per-worker charge could affect hiring, staffing or location decisions. Critics argue that employers may have a financial reason to avoid workers who are likely to qualify for Medicaid, including some people from lower-income households and single-parent families.

New Jersey’s law includes language aimed at those concerns. Employers may not make employment decisions based on a worker’s Medicaid status. The law also exempts employees and dependents with developmental, intellectual or permanent physical disabilities, and beginning July 1, 2027, adds exclusions tied to certain short-term, temporary, seasonal, part-time and per diem workers.

Medicaid is funded jointly by the federal government and the states, which means federal changes can affect state budgets. If federal rules reduce coverage, change eligibility or increase state costs, governors and lawmakers may look for new revenue to support the program. New Jersey’s fee treats employer-linked Medicaid enrollment as a state financing issue, not only as a health coverage issue.

The legal question is how far states may go in connecting employer obligations to workers’ public health coverage. States have broad authority to raise revenue and regulate businesses. Employer health benefits, however, are also governed by federal law, which can limit state efforts that interfere with workplace benefit plans.

One key federal law is ERISA, the Employee Retirement Income Security Act, which governs many employer health benefit plans. ERISA generally gives employers a national framework for running workplace benefit plans and can block state laws that require companies to administer those plans differently from state to state.

A prior Maryland law illustrates the risk. In 2006, Maryland adopted a measure that effectively applied only to Walmart and required certain large employers to spend a set share of payroll on health care or pay the difference to the state. The Retail Industry Leaders Association challenged the law, and the U.S. Court of Appeals for the Fourth Circuit found it was preempted by ERISA because it would have forced covered employers to restructure employee health plans and interfere with uniform national plan administration.

New Jersey’s law is structured differently from the Maryland measure. The new fee does not directly require employers to spend a set percentage of payroll on health benefits. Instead, it is tied to the number of workers and dependents enrolled in Medicaid. That distinction could matter if the law is challenged, because courts often look not only at how a state describes a law, but also at how it operates.

The worker protection issue gives the policy a second legal dimension. Medicaid status is not treated the same way under federal employment law as race, sex, religion, disability or other protected categories. A state can still write a law that bars employers from using Medicaid enrollment as a factor in hiring, firing, scheduling or layoffs, which is the type of protection New Jersey included in the measure.

California is considering a related approach, though it has not imposed a charge. AB 177, known as the Fair Share from Big Corporations Act, directs state officials to present options to lawmakers by March 1, 2027, for making large corporations help cover Medi-Cal costs connected to workers enrolled in the program. Medi-Cal is California’s Medicaid program.

Other states have also explored similar measures. Legislation with related goals passed one legislative chamber in Colorado and Oregon this year but did not become law. A proposal was introduced in Washington, and Connecticut Gov. Ned Lamont has called for a similar approach that could be folded into a future state budget.

New Jersey’s employer fee has been enacted as part of the state budget plan. California’s proposal directs state officials to present options to lawmakers by March 1, 2027, while similar measures in Colorado, Oregon, Washington and Connecticut remain at earlier stages.