June 26, 2018 

New Jersey has become the first state to respond directly to Congress zeroing out the individual mandate penalty under the Affordable Care Act (“ACA”).  As you may recall, last December Congress effectively nullified ACA’s healthcare mandate for individuals to maintain some level of health insurance by reducing the applicable penalty to zero dollars (starting in 2019).  

Some industry observers expressed concerns about the effect this will have on individual insurance markets around the country.  As a result, it was expected that some states would attempt to remedy this situation themselves, and New Jersey is the first to do so.

The New Jersey mandate for individual health coverage basically follows the structure of the federal healthcare mandate – it requires individuals to have coverage or pay a tax penalty, with certain exceptions.  There are, however, some notable differences.

  • Grandfathered plans do not count:  Individuals covered under grandfathered plans have to pay the penalty unless the grandfathered plan complies with all the ACA provisions; this was not true under the ACA mandate.  Recall that grandfathered plans are plans that were in effect before the ACA and do not have to comply with all of the ACA’s mandates.  If a grandfathered plan complied with all the ACA provisions, there would not be a need to be grandfathered anymore, so this effectively means grandfathered plans will not satisfy this healthcare mandate.  

  • Association/MEWA plan coverage may not count:  Coverage offered by an association, trust, or multiple employer welfare arrangement (“MEWA”) does not avoid the penalty either, unless the association, trust, or MEWA complies with certain New Jersey state insurance laws.  Practically, this means any association health plan or MEWA covering New Jersey residents will need to comply with New Jersey’s state laws.  For AHPs/MEWAs, this could mean registering with the state and providing some level of reserves, as required by that law.  This seems to be an attempt to undercut the Department of Labor’s association health plan rule.

  • Allocation of penalty revenue:  Any funds collected will be deposited in the newly created New Jersey Premium Security Fund.  This is a reinsurance program for insurers in the state.  This is designed to help keep New Jersey health premiums low.

  • NJ penalty conditioned on federal tax credits:  The penalty will not apply if the federal government stops providing tax credits to pay for individual coverage.

The New Jersey individual mandate goes into effect on January 1, 2019, exactly coinciding with the ACA individual mandate’s reduction to zero.

Takeaways 

First, this is a tax on individuals, not companies.  Therefore, the New Jersey is not piling on to the ACA employer mandate (which is still in effect).

Still, employers with employees in New Jersey will want to make sure their health coverage complies with these new state-directed requirements.  Otherwise, those employers could end up with unpleasant employee relations headaches as workers are assessed penalties even though they took the employer’s coverage.  For example, employers with grandfathered plans may want to consider adding a non-grandfathered option to their plan.  Additionally, employers that are in, or are considering joining, an association health plan or similar arrangement will need to evaluate carefully whether that arrangement complies with these New Jersey rules.  Your HUB International advisor can assist in evaluating these offerings to confirm they meet the requirements of this new New Jersey statute. 

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.