Murphy Signs Law to Create NJ’s Own Health Insurance Mandate

In effort to stabilize health insurance market and ensure coverage remains affordable, NJ becomes second state to creates its own individual mandate

Credit: NJTV
Gov. Phil Murphy
Healthcare policy experts, business leaders, and patient advocates praised Gov. Phil Murphy’s endorsement of a state requirement that residents obtain medical insurance or face a fine, a move they said will help protect recent gains in insurance coverage, control premium prices, and ensure New Jersey still receives billions in federal funding.

Murphy signed Democratic-backed legislation Wednesday, making New Jersey the second state — after Massachusetts — to create its own individual mandate. The law requires those without health coverage to pay a tax penalty starting next year, when the federal mandate that is part of the national Affordable Care Act is scheduled to end. He also approved a measure to create a healthcare reinsurance fund, fueled by industry fees and federal dollars, to help offset the costs of the most expensive treatments.

While there is widespread support for Murphy’s move, the idea of taxing uninsured residents remains controversial with some, including a number of Garden State Republicans who opposed the bill. A study by Rutgers University’s Center for State Health Policy found that nearly two-thirds of residents agreed the state should take action to shore up the ACA if the federal government failed to do so, although only two in five favor the use of the tax penalty involved. (In New Jersey, those penalties would start at nearly $700 for adults and $350 for children.)

“The truth is that most people are unaffected by the mandate because they already have coverage from a job, Medicare, or another source,” said Joel Cantor, a Rutgers professor and director of the health policy center. “But there is plenty of evidence that the mandate will help keep premiums down, and when people hear that they are much more likely to say they support the idea. “

Murphy onboard from the start

There was little doubt Murphy would sign the legislation, which passed the Legislature six weeks ago, as the Democrat made his support for the ACA clear from early in his gubernatorial campaign. Soon after taking office in January he signed an executive order requiring relevant state departments to do more to promote the federal program and encourage enrollment in the state’s Medicaid, or FamilyCare. He has also called for the state to take a more active role in regulating commercial insurance plans sold on the ACA’s marketplace, or health insurance exchange.

The ACA, or Obamacare, which took full effect in 2014, helped more than 800,000 additional Garden State residents obtain insurance; at least 500,000 through the expansion of Medicaid and another 300,000 who were able to purchase discount commercial policies on the exchange. Since then, the state’s uninsured rate has declined from 13.2 percent to 8.7 percent, the lowest in decades.

But ongoing efforts by the Trump administration and other Republicans in Washington, D.C., to dismantle the law are starting to take a toll, new research suggests. A study by the Commonwealth Foundation found 4 million working-age people have lost coverage since 2016. In addition, confusion over the law has contributed to a rise in premium costs, which jumped as much as 28 percent in New Jersey. The pending repeal of the federal individual mandate, ordered as part of the tax-reform package President Donald Trump signed late last year, is expected to exacerbate this trend.

A state-based individual mandate is critical to protect the Garden State’s gains under the ACA and avoid potential backslide, noted Sen. Joseph Vitale (D-Middlesex), the health committee chairman and lead champion of both bills. “New Jersey has benefited from the healthcare law, and we want to see that those benefits continue,” Vitale said. “It has made healthcare more affordable and more accessible, especially for those in need.”

Assemblyman John McKeon (D-Essex), an Assembly sponsor, called the mandate “commonsense action” to support the progress seen to date. “We cannot stand idle as our residents are put at risk,” he said. “We fought long and hard to get more people insured in New Jersey, because it’s both fiscally and socially responsible. We will continue that fight because it’s the right thing to do.”

Spreading the risk

The mandate is designed to encourage healthier people to purchase insurance, which spreads the risk pool and helps offset costs, explained Raymond Castro, director of health policy at New Jersey Policy Perspective, a progressive research organization that has long tracked the ACA. The reinsurance program will also reduce the impact of extreme expenses, he said.

“These policies should stabilize New Jersey’s healthcare market and further the state’s progress in reducing the uninsured and keeping premiums affordable,” Castro said. In addition, he called the law a “powerful message to Washington that New Jersey will not allow the Affordable Care Act to be sabotaged.”

Without the law, NJPP predicted policy costs would have soared $76 million next year for those who purchase policies on the individual market, without the help of federal subsidies — an increase of nearly $1,800 for a four-person family, or $500 for an individual — and could have led to as many as 300,000 people losing insurance coverage over time. These shifts would also reduce the Medicaid funding New Jersey receives from the federal government by billions of dollars.

The individual mandate law (A-3380/S1877), the New Jersey Health Insurance Market Preservation Act — also sponsored by Sen. Troy Singleton (D-Burlington), Assemblywomen Pam Lampitt and Carol Murphy (both D-Camden), and Assemblyman Herb Conaway (D-Burlington), health committee chair — calls for the Treasury Department to set up a program to collect penalties from residents who pay income tax but do not have health insurance, starting January 1. Treasury officials would be required to notify taxpayers of this new law by the end of November.

Calculating the penalty

According to a fiscal analysis of the bill by nonpartisan legislative staff, the penalty is to be calculated based on the current federal formula, which calls for a tax of 2.5 percent of an individual or family’s income, or $695 per adult and $347 per child — whichever is greater — for a maximum family penalty of $2,085. The penalty is designed to increase each year that someone is not covered, but can’t exceed the price of a lower-cost bronze-level plan on New Jersey’s ACA marketplace, which averaged just under $3,300 in 2017, and has been increasing at close to 10 percent annually.

Data from the Internal Revenue Service from 2015, the latest year available, found that nearly 189,000 Garden State residents paid more than $93 million total in federal ACA tax penalties that year, according to the legislative review. The year before, 221,000-plus residents paid over $51 million in penalties, although the reasons for the changes are not clear. Both the current federal measure and the new state law include a hardship exemption for those who can demonstrate they are unable to pay.

The second bill, (A-3379/S-1878), the New Jersey Health Insurance Premium Security Act — which had similar sponsorship — would direct the state Department of Banking and Insurance to request a federal waiver to establish a health insurance reinsurance program, to start in January. The law involves the creation of a fund, to be overseen by Treasury, that would be a repository for fees collected from insurance companies doing business here and federal dollars. A board would be appointed to oversee the distribution of these funds to insurers who face spikes in treatment costs.

Better Choices Better Care NJ, a healthcare coalition that includes labor, business, and policy advocates and is backed by Horizon Blue Cross Blue Shield, the state’s largest insurance company, praised the sponsors and the governor for their work to enact the measure, something now under consideration in other states wrestling with the same concerns. The group supported an individual mandate as part of a 15-point plan it released last fall, with options to shore up the state’s healthcare system.

“Chaos at the national level continues to threaten to make healthcare less affordable and accessible,” group spokesman Chris Donnelly said, noting that Washington’s failure made it crucial for the state to act. “Without an individual mandate, hundreds of thousands of New Jerseyans — including those most at risk — would see the price of coverage soar beyond reach,” he added.

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