New Jersey Charges Companies with Workers on Medicaid

New Jersey has become the first state in recent years to enact a law charging companies whose employees are enrolled in Medicaid, the joint federal-state health insurance program for low-income residents. Governor Mikie Sherrill signed the measure on July 1 as part of the state budget, which anticipates raising $145 million in the first year from the program. The policy is being closely watched by other Democratic-led states facing federal Medicaid cuts, including California, Connecticut, Colorado, Oregon, and Washington.

How the Fee Works

Under the new law, employers with at least 50 workers covered by Medicaid will be billed for each employee and their dependents receiving benefits. The fee structure is tiered: companies with 50 to 249 Medicaid beneficiaries will pay $325 per person annually, while employers with 500 or more recipients will face $725 per person per year. The legislation exempts temporary, seasonal, and part-time employees, and it explicitly bars employers from making employment decisions based on a worker’s Medicaid status, according to AP News.

Why States Are Acting Now

The immediate catalyst for the new employer charges is the major tax and policy law signed by President Donald Trump a year ago. The nonpartisan Congressional Budget Office projects that more than 10 million people will become uninsured by 2034 as a result of the federal changes, which include work requirements for some Medicaid beneficiaries and stricter documentation rules. These provisions are expected to reduce federal Medicaid funding to states, prompting Democratic-led states to seek new revenue sources to maintain their programs.

A Wave of Similar Proposals

California passed a bill this week directing the state administration to present options for an employer charge next year. Democratic gubernatorial candidate Xavier Becerra has made the policy a centerpiece of his election platform. State Sen. John Laird, the Democrat who sponsored the California proposal, argued that the policy addresses a fundamental fairness issue. “If you’re a small business person in California, you are quite likely paying for health insurance for your employees,” Laird said. “And through your taxes, you’re paying for health insurance for some of the biggest employers in California. And that’s not fair.”

Connecticut Governor Ned Lamont, a Democrat seeking a third term in November, has called for a similar measure to take effect in two years. Legislation passed one chamber in both Colorado and Oregon this year but did not become law, and a measure was also introduced in Washington state.

Opposition from Business and Policy Analysts

Business groups have strongly criticized the approach. Christopher Emigholz, chief government affairs officer at the New Jersey Business and Industry Association, argued that employers should not be penalized when workers voluntarily choose Medicaid over employer-provided coverage. “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,” Emigholz said in a statement.

Notably, some left-leaning policy organizations have also raised concerns. Gideon Lukens, a health policy analyst at the Center on Budget and Policy Priorities, warned that the fee could have unintended consequences. “Usually, when I see a tax on something it’s going to discourage whatever being taxed,” Lukens said. He cautioned that the policy could lead companies to hire fewer low-income workers or single parents, and could influence decisions about where to locate or how many workers to employ.

Historical Precedents and Legal Landscape

The concept of charging employers for Medicaid-enrolled workers is not new. Massachusetts adopted a similar charge in 2017, reaching up to $750 per nondisabled worker on MassHealth, but the program expired after one year. An earlier attempt in Maryland in 2006, which effectively targeted only Walmart, was struck down by a federal judge on ERISA preemption grounds. The latest generation of proposals may avoid that legal pitfall by not referencing employer health plans in the legislation itself, instead focusing directly on Medicaid enrollment.

What to Watch For

New Jersey’s program is expected to most heavily affect large employers with significant low-wage workforces, including retail, hospitality, and logistics companies such as Amazon and Walmart. If the policy proves successful and survives potential legal challenges, it could become a model for other states grappling with the intersection of rising healthcare costs and federal funding reductions. The 2026 midterm elections and gubernatorial races, particularly in California and Connecticut, will likely determine how quickly the policy spreads.