New Jersey appears poised to invest at least $200 million more in efforts to make health insurance more affordable for working- and middle-class consumers, thanks to a controversial new state tax that would replace a federal assessment on health plans scheduled to sunset in January.
A bill creating the new state insurance tax narrowly passed both houses of the Democratic-led Legislature in a party-line vote on Thursday; Democratic Gov. Phil Murphy has indicated he intends to sign the measure into law.
Murphy first called for the strategy — which he framed as another protection against the Trump administration’s sabotage of the federal Affordable Care Act — as part of the fiscal year 2021 budget proposal he outlined in February. That concept has since been replaced by two shorter-term spending plans as a result of the economic downturn triggered by the coronavirus pandemic.
The legislation imposes a 2.5% tax on the net premiums collected for individual and large business plans sold through the New Jersey markets, which sponsors said is expected to generate close to $220 million annually. Approximately $70 million would be used to fund the state’s reinsurance program — another Murphy creation credited with helping suppress premium prices in recent years — and the rest would go for subsidies for individual market consumers, enrollment support and other initiatives designed to boost participation and control costs. More than 300,000 residents now obtain coverage through the individual market.
“This bill will help to ensure that people are able to afford health insurance during this critical time when a global disease is not only threatening their health, but their financial security in unimaginable ways,” said Sen. Joe Vitale (D-Middlesex), who chairs the Senate health committee and sponsored the bill with Sen. Nia Gill (D-Essex). “These subsidies could not come at a more critical time, in the midst of a pandemic, when health insurance is more vital than ever.”
Republicans wary of measure
The measure enjoyed strong support during the legislative process from an array of policy advocates, including New Jersey Citizen Action and New Jersey Policy Perspective; some academic experts back the bill’s goals, but have concerns about the assessment. Business groups — and Republican lawmakers — expressed concerns over the change, warning that increased costs would be passed on to those purchasing the plans, including small businesses currently struggling under the pandemic.
“While we acknowledge and appreciate several amendments made to this legislation, ultimately this bill represents yet another cost to business at the worst possible time,” said New Jersey Business & Industry Association chief government affairs officer Chrissy Buteas. “Raising taxes does not make healthcare more affordable.”
The legislation (A-4389), sponsored by Vitale and Assemblyman John McKeon (D-Union), was introduced in early July and quickly advanced through several committee hearings in recent weeks. Supporters said it must be in place by July so that insurance companies can finalize their 2021 health plan rates in time to meet state deadlines.
“By replacing what stood at the federal level, this legislation simply serves as a state-level continuation of a soon-to-expire assessment that insurers were already paying,” McKeon said. “This will allow us to more appropriately and significantly enhance the individual market in New Jersey and provide subsidies to keep rates down so insurance is more affordable for our families and small businesses.”
As amended, the bill calls for insurance companies to report to the state Department of Banking and Insurance (DOBI) the net value of the premiums they wrote during the past year for individual and large business plans. Premiums from small business plans, Medicaid and Medicare policies, nonprofit dental plans and certain self-funded group employer coverage are not included in this assessment, under the final version.
Reducing the assessment
The DOBI commissioner would review this information and calculate assessments at 2.5% of the value of these premiums and insurance companies would be required to pay this amount. The assessments, estimated to reach $220 million in calendar year 2021, would be held in a newly created Health Insurance Affordability Fund in the Treasury Department. Under the initial version of the bill, the assessment was set at 2.75% and the tax applied to more types of plans.
The affordability fund would be used to increase access to and affordability within the individual market, with a “primary focus” on helping households that earn less than 400% of the federal poverty level, or $104,800 for a family of four, and reducing the racial gap in health care coverage. Blacks are 1.5 times more likely to be uninsured nationwide, experts have found. And while New Jersey FamilyCare, the state’s Medicaid program, covers children in families that earn up to this 400% level, adults qualify only if they earn less than 138%, or just over $36,000 for a four-person family.
The bill does not specify exactly how this money would be spent, but recommends “subsidies, reinsurance, tax policies, outreach and enrollment efforts,” among other strategies. It notes allocations would be determined by leaders from DOBI and the state departments of health and human services, which oversees Medicaid. The federal government now offers subsidies to some consumers who earn less than 400% of the federal poverty level when they purchase health plans through the ACA’s marketplace, or exchange, but critics contend this support has not kept pace with the rising cost of health coverage.
Sponsors said about $70 million of the taxes collected annually would be set aside for the reinsurance program, which uses state and federal funds to offset the most costly claims and has been credited with helping to stabilize the industry’s costs and reduce market volatility for individual and small business plans. Murphy adopted the reinsurance program in June 2018, along with a state requirement that people obtain health insurance or pay a fine, which replaced the federal “individual mandate” eliminated under President Donald Trump.
In 2019, Murphy signed another measure directing the state to take control of the ACA marketplace — previously run by the federal government — starting this year. The change gives New Jersey far greater control over the plans sold through this system and also enabled the state to collect a 3.5% tax on health plans now going to Washington, D.C, to support the system. The new premium assessment would come on top of this existing ACA tax.