State Is Set to Charge Companies With Workers on Medicaid. Other States May Follow

Amazon, the largest employer of Medicaid recipients in New Jersey, had roughly 5,600 workers on the public health plan at the time the state collected its data – plus more than 10,000 of their dependents. That means taxpayers, not Amazon, were picking up the tab for a significant chunk of what it costs to keep those families covered. New Jersey just decided to change that.

Gov. Mikie Sherrill signed a law this week making New Jersey the first state in modern U.S. history to successfully launch a standing employer Medicaid fee. Lawmakers approved the measure, and Sherrill signed it, setting it up to generate $145 million annually for the state’s Medicaid program. The fee targets large employers whose workers are enrolled in Medicaid rather than company-sponsored health plans. Two earlier states tried something similar and ran into political and legal walls. New Jersey is betting this version holds up.

The timing matters. Federal changes to Medicaid are reshaping the program in ways that will leave states spending more while covering fewer people. According to the KFF analysis of CBO projections, Medicaid enrollment is estimated to be 13% lower and spending 8% lower at the end of the budget window, a shift driven by the Medicaid cuts in the 2025 reconciliation law. For states like New Jersey, that means finding new revenue, and quickly.

How the Employer Medicaid Fee Works

Sherrill signed the measure to charge employers with at least 50 workers covered by Medicaid, with companies billed for each employee and each employee’s dependent on the program. The fees start at $325 per person annually for companies with 50 to 249 Medicaid beneficiaries and rise to $725 per person for employers with at least 500 recipients.

According to the New Jersey Monitor’s reporting on the 2024 report from the state Department of Human Services, nearly 750 companies, nonprofits, and government offices would be subject to the fee. The scale of who is covered by these employers is significant. Medicaid claims for the 382,000 people tied to these companies cost $427 million over just three months, with $137 million coming from state funds alone.

Amazon was the largest employer of Medicaid recipients in New Jersey at the time the report was compiled, with some 5,600 workers and more than 10,000 dependents on the public health plan. Walmart had more than 10,000 workers and family members on Medicaid, according to the same New Jersey Monitor reporting.

The law includes a few guardrails designed to blunt criticism. Temporary, seasonal, and part-time employees are exempt from the fee, and employment decisions based on a worker’s Medicaid status are explicitly barred. The anti-discrimination clause is significant: one concern from critics is that employers might quietly avoid hiring or retaining workers they know to be on Medicaid. Banning that practice by statute doesn’t make it impossible, but it does create legal exposure for companies that try it.

The Business Case Against It

The New Jersey Business and Industry Association said in a public statement that many job-creators would be penalized for circumstances they have no control over, since employers generally don’t choose which public assistance programs their workers enroll in.

Jennifer Spiegel, a health policy analyst at New Jersey Policy Perspective, has warned that the fee could discourage companies from hiring people on public healthcare plans, and that lawmakers should pursue broader revenue solutions that ask profitable corporations to contribute without putting low-wage workers at risk. Gideon Lukens, a health policy analyst at the Center on Budget and Policy Priorities, has raised a related concern: that such fees could lead companies to employ fewer people from low-income households or single-parent families, and could factor into decisions about where to locate or how many workers to hire. The fear is that taxing employers whose workers are on Medicaid creates an implicit incentive to hire workers who aren’t, which could cut off low-income adults from some of the jobs they’re best positioned to get.

These are real concerns. The law tries to address the most obvious one by banning Medicaid-status discrimination in hiring and layoff decisions. Whether enforcement of that provision will be robust enough to deter the subtler forms of economic sorting remains unclear.

Two States That Tried Before

Charging companies whose workers are covered by Medicaid isn’t a new idea. At least two states have previously enacted it. In August 2017, Massachusetts Gov. Charles Baker signed legislation charging employers up to $750 per nondisabled worker covered through Medicaid or a state-subsidized health plan. The program ran for 2018 and 2019 and was written to expire at the end of that period – it was not renewed.

Maryland’s version, enacted in January 2006 after the state legislature overrode the governor’s veto, immediately affected only Walmart. The Retail Industry Leaders Association challenged it in court and won. U.S. District Judge J. Frederick Motz ruled that the law violated the federal Employee Retirement Income Security Act (ERISA) – the federal law governing self-insured employee benefit plans – because it required Walmart to track and allocate benefits differently in Maryland than in other states.

That legal precedent shaped how New Jersey drafted its legislation. The latest generation of proposals may avoid that legal pitfall by not referencing those self-insured health plans in the legislation at all. That’s a meaningful structural distinction, and it’s why business groups have not yet mounted the same kind of court challenge they used to stop Maryland’s version.

The Massachusetts experience raises different questions. Its program came and went in roughly two years, partly because the political winds shifted. A $750-per-worker fee didn’t survive once the statutory deadline passed. New Jersey’s version is written directly into the state’s annual budget, which gives it more staying power – but it also means future budget negotiations could unravel it.

Why Other States Are Paying Attention

New Jersey isn’t operating in a vacuum. The driving force behind these proposals is a major federal policy shift that’s raising the cost of Medicaid for states while reducing the number of people who will be covered. Beginning in 2026, states started implementing Medicaid policy changes from the 2025 reconciliation law, which the Congressional Budget Office estimates will reduce federal Medicaid spending by $911 billion over the 2025-2034 period relative to prior projections.

The coverage losses are expected to be substantial. The nonpartisan CBO projects more than 10 million people will be uninsured because of the law by 2034. States that expanded Medicaid under the Affordable Care Act will bear much of the fiscal strain, since the federal government is pulling back from the cost-sharing arrangements that made expansion affordable.

California State Sen. John Laird, a Democrat who sponsored that state’s employer fee proposal, said publicly that the federal tax and policy law President Trump signed a year ago was a major factor driving the need for action, arguing it could force his state to spend more on Medicaid to plug holes left by federal reductions.

California’s bill, passed this week, doesn’t impose an employer Medicaid fee now, but it does direct the state administration to present lawmakers with options for doing so next year. Completing that process will fall to Newsom’s successor, as the governor is leaving office in January. Democratic gubernatorial candidate Xavier Becerra has made an employer charge part of his election platform, according to multiple news reports covering the California race.

The pattern is clear: Democratic-led states watching federal Medicaid funding shrink are looking at employer fees as a partial offset. New Jersey moved first with an actual law. California has a bill preparing the groundwork. Other states are likely watching both.

What to Make of This

The employer Medicaid fee debate comes down to a genuine disagreement about who bears responsibility for low-income workers’ health coverage. Proponents argue that companies benefiting from Medicaid-subsidized labor are, in effect, passing a portion of their labor costs to taxpayers. Critics counter that the fee punishes companies for employing exactly the population the social safety net is designed to protect.

Both arguments have merit, and neither is purely wrong. The question is whether the policy design can thread that needle – collecting revenue without creating incentives to avoid hiring low-wage workers.

New Jersey’s version is more carefully constructed than its predecessors. Exempting part-time and seasonal workers limits the fee’s reach to stable, full-time employment relationships. Barring Medicaid-status discrimination in hiring adds a legal deterrent to the most obvious unintended consequence. And baking it into the state budget makes it structurally harder to quietly let expire the way Massachusetts did.

Whether it survives legal challenge, political turnover, and economic pressure from large employers like Amazon and Walmart is a different question. What’s certain is that with federal Medicaid funding contracting on a scale not seen in decades, states are going to keep reaching for new revenue tools. New Jersey has picked up the one that two states before it dropped, and it’s betting on a better grip this time.

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