Gov. Murphy’s Budget Includes Trio of New Health-Related Taxes

Lilo H. Stainton | February 26, 2020 | Health Care, Budget
Corporate-responsibility fees and pill-tax on opioid manufacturers, as well as stiffer tariff on cigarettes, are the underpinnings of governor’s health-care plans
Credit: Pixabay via Pexels
Healthcare fundamentals

New Jersey government could collect an additional $400 million annually under a trio of new revenue-raisers Gov. Phil Murphy proposed to help fund various health-related programs as part of nearly $41 billion state spending plan he outlined Tuesday.

The governor called for increasing the cigarette tax by more than 60% to match the rate now in place in New York and Connecticut — among the highest in the nation — to raise nearly $216 million more over the coming year. The Legislature must approve a state budget by July 1.

Murphy also advocated for a new “corporate responsibility fee” to bring in nearly $181 million from large companies with more than 50 employees covered under the public Medicaid plan, instead of employer-sponsored health insurance. And he wants to institute a tax on opioid manufacturers to generate another $20 million, something at least 10 other states have now done. The governor introduced similar concepts in last year’s budget proposal, but the measures failed to gain traction in the legislature.

Chiding big companies for not insuring workers

“There are large corporations in New Jersey that do not provide health benefits to their employees and their families, or who offer policies that their employees cannot afford. When these families turn to Medicaid, it’s our taxpayers who pick up their health-care costs. New Jersey pays an average of $1,000 per person — without any contribution by their employers,” the governor said during his budget speech before a joint session of the Legislature in Trenton. Murphy did not comment on the cigarette tax or opioid manufacturer assessment in his public remarks.

The three proposals are part of nearly $1 billion in new revenue-raisers included in Murphy’s fiscal year 2021 budget proposal, which also benefits from continued economic growth and public-worker benefit savings. The governor’s plan calls for investing at least $722 million in New Jersey’s hospital system and another $100 million in funding to address opioid addiction, an investment he made in his past two budgets as well.

The new health-related tax proposals were well received by many health-care advocates, including New Jersey Citizen Action and the New Jersey for Health Care Coalition, which includes labor groups and patient activists.

“The governor’s budget has the potential to make health coverage much more affordable for New Jersey families who struggle everyday with the high cost of health care,” said Ray Castro, health-care policy director for New Jersey Policy Perspective, a progressive research and advocacy group. “The state can and should use these funds to expand health coverage for those who need it most, including uninsured children and low-income families who cannot afford the premiums in the marketplace,” he said.

Making NJ less competitive?

But corporate leaders and Republican lawmakers were quick to oppose these new revenue requests, claiming Murphy was not doing enough to make the Garden State affordable for business and residents. They are particularly worried about the impact of the corporate responsibility tax, which GOP leaders said would make New Jersey more uncompetitive for businesses.

“What about a taxpayer-responsibility program” said Assembly Republican leader Jon Bramnick said. “When you decide whether to form a business in this state you are looking at a super-tax on your employees.”

In addition, some patient-advocacy groups joined with business leaders and employers to question the benefit of Murphy’s plan to charge opioid makers a per-pill fee for medications that provide critical pain relief to many, but also contribute to the state’s addiction epidemic. The American Cancer Society’s Cancer Action Network, Home Care and Hospice Association of New Jersey, New Jersey Pharmacists Association and business organizations worried that the tax would also drive up the cost of medications for patients in need.

“We are very concerned this is a tax on some of the most vulnerable patients in our state and the overall access to care,” said John Holub, executive director of New Jersey Council of Chain Drug Stores. “Taxing the healthcare distribution network is simply bad public policy to make up for state budget shortfalls.”

However, Heather Shapter, a leader with the New Jersey Resource Project, said it is time for opioid makers — who have made billions off these medications — to contribute more to public health. “It’s time they pay up and put our health and lives before their profits,” she said. “This is a great first step, and we need to ensure funds go toward expanding services — especially for people on Medicaid and without insurance — and that we increase our investment to address this crisis.” 

No free ride from Democrats

Murphy’s proposals may also face an uphill battle in the Legislature, although it is led by fellow Democrats. All three will require statutory changes; Democratic leaders said Tuesday they considered the governor’s plan a good starting point for negotiations. Senate President Steve Sweeney (D-Camden) also said the “cigarette tax is a big problem,” after the speech.

Murphy was unable to secure sponsors last year for the corporate-responsibility fee or the opioid manufacturer’s tax, but officials said the plan was tweaked to address some of the concerns lawmakers raised — including legal challenges to similar plans introduced in other states. (New York State was able to institute a similar pill-tax last year.)

“Now, I know that the budget I receive back won’t look exactly like the one I am handing you,” Murphy conceded in his speech. “But I know that by working together, we will arrive at a budget that continues to restore the faith that we can work together for the common good, and that we can deliver upon the promises we’ve made to our middle-class families — and, just as importantly, to those striving to join our middle class.”

Higher taxes on a pack of smokes

When it comes to cigarette tax, the governor wants to raise the fee from $2.70 per pack — which generated around $71 million — to $4.35 (customers must also pay 6.6% sales tax), to generate an additional $215.8 million. Anti-smoking advocates have long pushed for higher tax rates as a way to  drive down tobacco use.

With the corporate-responsibility fee, designed to raise $180.5 million in new revenue, the governor would tax private companies that have more than 50 employees on the Medicaid rolls because they either don’t have coverage through work, or can’t afford it.

The fees would start at $325 for each worker — and their dependents — for businesses with between 50 and 250 employees insured through the public program; the assessment would rise to $525 for companies with 250 to 500 Medicaid-covered workers and be set at $725 for firms with more than 500 employees insured by taxpayers.

“The corporate-responsibility fee is aimed at employers whose employees are forced to rely on the state’s Medicaid program because their employers fail to offer comprehensive and affordable coverage,” said Citizen Action health-care program director Maura Collinsgru.

“This is the right thing to do. Corporations should not be allowed to have a free ride and push their costs onto the state.”

There were few immediate details available on the opioid manufacturer’s tax, but legislation drafted last year by the governor’s office would have imposed fees of up to $5 million on companies that distribute drugs in New Jersey. That initiative would have raised $21.5 million; this year the budget calls for $20 million in revenue.

State officials said revenue from these new tax sources would allow them to invest $340 million to offset increased Medicaid costs, $100 million in a wide range of addiction initiatives, $45 million in additional support for children’s mental health services and nearly $20 million for women’s health care and family-planning services. It would also create nearly $2 million for anti-smoking programs, part of a $7.4 million total investment in tobacco cessation programs Murphy budgeted for fiscal year 2021.