NJBIA and a coalition of employers issued a letter to the Legislature this week warning that Gov. Mikie Sherrill’s FY27 budget proposal to penalize employers with 50 or more workers on Medicaid is unfair to businesses, nonprofits and healthcare providers, is likely illegal, and will also have serious unintended consequences for many workers who choose Medicaid coverage.

“New Jersey’s affordability challenges are already among the most severe in the nation,” wrote NJBIA Chief Government Affairs Officer Christopher Emigholz.

“Adding another employer assessment tied to Medicaid participation would increase business costs, discourage hiring, complicate workforce management, and create additional uncertainty at precisely the wrong time for our state’s economy.”

The letter, which is undersigned by 13 different business grouops, nonprofits, and key state employers, lists nine flaws in the governor’s plan – which seeks to raise $145 million by charging employers fees of up to $725 annually for every employee covered by Medicaid, or NJ Family Care.

Here are excerpts explaining those flaws:

Flaw #1-Based on Faulty Data: “The proposal appears to rely heavily on a Department of Human Services report that is based on self-reported data and incomplete assumptions regarding employer-sponsored insurance coverage. Public policy decisions with broad economic consequences should not be built upon data that may not accurately reflect employer offerings, employee eligibility, or employee enrollment decisions.

“Employers do not even know if their employee is on Medicaid, only knowing that their employee accepted or declined the health benefits that they were offered. How could an employer be assessed for something they are unaware of?

Flaw #2-Goes in Opposite Direction on Medicaid: “New Jersey should be proud of its efforts to keep as many eligible people on Medicaid as possible, and this proposal directly contradicts those ongoing state efforts.

“Under new federal Medicaid work requirements, New Jersey residents will need 80 hours of work per month, part-time employment, in order to maintain health coverage eligibility. Yet this proposal would effectively penalize employers for hiring the very individuals who need part-time jobs to comply with those requirements.

“New Jersey should be incentivizing the hiring of low-income individuals and Medicaid recipients, not creating financial disincentives for employers to provide those opportunities.”

Flaw #3-Illegal Under Federal Law: “There are serious legal concerns regarding whether this proposal would violate the federal Employee Retirement Income Security Act (ERISA). Courts have previously struck down similar state efforts that attempted to mandate or influence employer health benefit structures for ERISA-covered employers.

“New Jersey risks years of costly litigation and legal uncertainty without leading to any new revenue for the State by advancing a proposal that may similarly be preempted under federal law.”

Flaw #4-Penalizes Employers for Employees Declining Health Benefits:  “Job creators in New Jersey could be unfairly penalized even when they offer robust and affordable health insurance coverage.

“Many employees may voluntarily decline employer-sponsored insurance because Medicaid provides free coverage with no co-pays, deductibles, or premium contributions. Under this proposal, employers could still face assessments despite making good-faith investments in employee health benefits.”

Flaw #5-Part-Time & Seasonal Jobs: “The proposal unfairly targets employers with part-time, temporary, or seasonal workers — positions that traditionally do not include health benefits in many industries nationwide.

“Retail, hospitality, tourism, agriculture, recreation, and numerous other sectors rely heavily on flexible and seasonal staffing models. Penalizing employers for utilizing these lawful and longstanding workforce structures would disproportionately harm sectors already struggling with labor shortages and rising operational costs.”

Flaw #6-Disabled Community: “This proposal could unintentionally discourage the hiring of individuals with intellectual and developmental disabilities (IDD). New Jersey has worked hard to promote employment opportunities and workplace inclusion for individuals with disabilities, with many legislators even sponsor bills to incentivize this practice.

“Yet many in this community rely on Medicaid for critical long-term supports and services, meaning a significant percentage of the IDD community utilizes  Medicaid regardless of employment status. That means that employers could face financial penalties simply for expanding employment opportunities for the disabled, directly undermining the state’s own workforce inclusion goals.”

Flaw #7-Double-Edged Sword for Some Healthcare Providers: “Certain health care providers and human services organizations are themselves  constrained by inadequate Medicaid reimbursement rates established by the state.

“Many providers operate under extremely thin margins and are unable to offer higher wages or richer benefits packages because state reimbursement rates do not adequately cover the cost of care.

“It is fundamentally unfair for the state to penalize employers for workforce conditions that are partially driven by the state’s own reimbursement policies.”

Flaw #8-Disincentivizing Hiring Low-Income Employees: “This proposal creates dangerous incentives against hiring lower-income workers, entry-level workers, and part-time employees who may require scheduling flexibility due to caregiving, education, disability, or other life circumstances.

“Employers should never be discouraged from creating opportunities for economically vulnerable populations.”

Flaw #9-Other State Experiences: “Massachusetts implemented a similar employer health assessment program years ago, only to abandon it after three years because it failed to achieve its intended policy goals and became an administrative burden for employers and state government alike.

“Other states have explored this idea previously only to not follow through on it, including New Jersey. New Jersey should not repeat a failed experiment that other states have already determined to be ineffective and unworkable, and we should instead focus on keeping as many New Jerseyans as possible on Medicaid or other quality health benefits. The business community would be happy to be a partner toward that.”

Signatories on the letter include:

• Early Childhood Education Advocates

• Home Care & Hospice Association of NJ

• Hospital Collaborative of New Jersey

• Inspira Health

• Lightbridge Academy

• New Jersey Food Council

• New Jersey Business & Industry Association

• New Jersey State Chamber of Commerce

• New Jersey Restaurant & Hospitality Association

• New Jersey Retail Merchants Association

• Saint Peter’s University Hospital

• Shore Medical Center

• Six Flags Great Adventure

To see the full version of the letter, click here.