NJ Adopts New Law Taxing Certain Employers to Bolster Medicaid Program
- 4 days ago
- 4 min read
As of July 1, 2026, the State of New Jersey has enacted a new law, signed by Governor Mikie Sherrill, that effectively creates a new employer assessment designed to help fund the State’s growing Medicaid obligations. The law, among the first of its kind in the nation, imposes an annual assessment on employers that have 50 or more employees enrolled in Medicaid. The amount of the assessment varies based on the number of Medicaid beneficiaries associated with the employer. The State projects the program will generate approximately $145 million in new annual revenue. The legislation has generated considerable discussion and concern within the business community. Many employer organizations view the assessment as a new employer tax that shifts a portion of the State’s Medicaid financing obligations to the private sector. There is also concern that similar legislation could be proposed in other states as they grapple with rising Medicaid costs and potential reductions in federal funding. The operational details of the program are still emerging. However, we have provided below a summary of the major provisions of the legislation and what they may mean for employers:
Headlines
The fee applies to all employers whose workforce includes at least 50 employees who receive health benefits coverage through the State Medicaid program.
The assessment is tiered based on the number of employees, or dependents of employees, who receive health benefits coverage through the State Medicaid program. For each employee or dependent of an employee who receives those benefits, an employer will be assessed an annual fee as follows:
Employers with 50-249 employees who receive benefits through Medicaid, $325 for each employee, and for each of the employee’s dependents, who receives Medicaid benefits.
Employers with 250-499 employees who receive benefits through Medicaid, $525 for each employee, and for each of the employee’s dependents, who receives Medicaid benefits.
Employers with 500 or more employees who receive benefits through Medicaid, $725 for each employee, and for each of the employee’s dependents, who receives Medicaid benefits.
Employers are not liable for the fee for an employee, or dependent of the employee, who receives health benefits coverage through Medicaid and has a developmental disability, intellectual disability, or a permanent physical disability.
Beginning on July 1, 2027, the law would exclude an employer’s lack of coverage for the following persons from the requirements of its provisions:
An employee of the employer who has been employed by the employer for less than 90 days at the time the fee is determined
An employee who works part-time, on a per diem basis, or who is a temporary employee, or
A seasonal employee
If, prior to July 1, 2027, an employer is charged a fee for an employee who would be excluded beginning on July 1, 2027, the employer will be entitled to a credit against any liability, or if there is no liability, a refund in the following year for any fee paid by the employer concerning that employee.
Employers are not expected to self-report which employees or dependents are on Medicaid. In fact, most employers don’t know who is enrolled in Medicaid because that information is protected by privacy laws such as HIPAA. The expectation is that the State will perform the matching using Medicaid enrollment records and employer wage or unemployment insurance records and then issue an assessment to the employer. The exact administrative process is still being developed.
Fines will be imposed for employers that fail to comply, and an appeal process will be provided for employers that dispute an assessment of a fee.
With the bill just signed into law, employers are asking questions such as:
How will the State accurately match Medicaid recipients to a specific employer?
How can an employer verify or appeal the State’s determination?
Will employers receive the names of the individuals, or only a bill?
How are dependents matched to an employer?
How frequently will the assessments be calculated?
The specific implementation details have not yet been fully published. The practical takeaway, for now, is that the law establishes the assessment, but many of the operational mechanics—including billing, appeals, and employer notification—still need to be addressed through regulations or guidance.
Further Explanation of the New Law
The State’s rationale is twofold: 1) raise revenue to help offset growing Medicaid costs, particularly in light of anticipated reductions in federal Medicaid funding, and 2) shift some of the cost to employers whose workers rely on taxpayer-funded Medicaid rather than employer-sponsored health insurance. The administration argues that some employers benefit financially when lower-wage employees obtain coverage through Medicaid instead of the employer’s health plan. Business organizations have raised several concerns:
It effectively creates a new employer tax tied to employees’ health coverage.
Employers generally do not know which employees or dependents are enrolled in Medicaid because that information is protected.
Critics argue it could create unintended hiring incentives or disincentives, although the legislation includes provisions intended to prevent discrimination against Medicaid recipients.
Potential Implications for Employers
From an employee benefits perspective, this could become significant. Employers with large numbers of lower-wage employees—such as those in retail, hospitality, healthcare, food service, logistics, and home care—could face a meaningful new annual expense. Some employers may reevaluate the affordability of their health plans, contribution strategies, eligibility rules, minimum-hour requirements, and whether offering richer employer-sponsored coverage could reduce Medicaid enrollment. Ironically, employers that intentionally maintain affordable, comprehensive health plans could face little or no impact, while employers whose workforce relies heavily on Medicaid could incur substantial new assessments.
New Jersey is one of the first states to adopt this type of assessment in its current form, and policymakers in states such as California, Colorado, Oregon, Washington, and Connecticut are reportedly considering similar approaches as they look for ways to finance Medicaid in the face of federal funding pressures. We are tracking the details closely and will share more information as it becomes available.
Should you have questions, please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
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