By: HUB’s EB Compliance Team
New Jersey has enacted a direct, per-employee fee on employers whose workforce relies on the state's Medicaid program for health coverage. In doing so, New Jersey joins a small group of states that have attempted to implement similar legislation. Massachusetts imposed a similar, temporary fee from 2018 through 2019, and Maryland's 2006 version was struck down as preempted by ERISA. New Jersey's is now the only such fee in effect.
Signed on June 30, 2026, and effective July 1, 2026, P.L.2026, c.23 requires New Jersey to annually assess employers with 50 or more employees enrolled in Medicaid a fee for each such covered employee or dependent. The fee is expected to raise roughly $145 million a year to help offset rising Medicaid costs in the state. Employers with a significant New Jersey workforce, particularly in retail, hospitality, and other lower-wage industries, should begin evaluating their potential exposure now.
How the Fee Works
An employer is subject to the fee if, at any point in the prior calendar year, it had 50 or more employees that were covered by state Medicaid. The fee applies per each such employee or dependent and is based on a headcount taken each December 31. The fee also scales with employer size: a) for employers with 50 – 249 employees who receive health benefits coverage through Medicaid, the fee is $325 for each employee or dependent that receives Medicaid benefits, b) for employers with 250–499 employees who receive health benefits coverage through Medicaid, the fee is $525 for each employee or dependent that receives Medicaid benefits, and c) for 500 or more employees who receive health benefits coverage through Medicaid, the fee is $725 for each employee or dependent that receives Medicaid benefits.
Each year on March 1st the state will notify employers of their applicable headcount under the new law, as well as the employer’s total liability. The headcount is tallied as of December 31st of the previous year. Payment is then due electronically by April 15. Late payment triggers a penalty of up to $500 per day for each impacted employee or dependent. Employers may appeal an assessment they believe is incorrect but must pay the fee while the appeal is pending. A successful appeal would result in a refund of the fee (but not any late-payment penalty already incurred).
Employees and dependents with a developmental, intellectual, or permanent physical disability are excluded from the headcount when determining the employer’s liability. Starting July 1, 2027, the law will also exclude employees with less than 90 days of tenure, part-time employees, per diem employees, temporary employees, and seasonal employees — with a credit or refund available for fees already paid on employees who later meet the definition of one of these exclusions.
Implications for Plan Sponsors
Unlike Maryland's law — which required large employers to spend a set percentage of payroll on health benefits and was struck down based on ERISA preemption in Retail Indus. Leaders Ass'n v. Fielder — New Jersey's new law does not require employers to change plan design, contributions, or eligibility rules. That distinction may be why the City of San Francisco’s similar law was upheld, and may also make the New Jersey fee more likely to withstand a challenge due to ERISA preemption. Plan sponsors should therefore be on the lookout for future legal challenges to the new New Jersey law.
Conclusion
New Jersey's new Medicaid employer fee is a significant new compliance obligation for large employers with meaningful Medicaid enrollment among their workforces. Other states are reportedly considering similar measures. Full information about the new fee, including comprehensive implementation details, and any legal challenges to the new fee, remain to be seen.
If you have any questions, please contact your HUB advisor. View more compliance articles in our Compliance Directory.
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Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization's or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization's specific situation in light of your or your organization's particular needs.