Some states are starting to crack down on companies that foist their workers onto Medicaid

New Jersey’s new fees turn public health coverage into a direct cost for employers—reviving an idea that hasn’t lasted long in the past.

New Jersey is launching a new fee on companies whose workers have Medicaid health coverage instead of being covered by their employers. Other states are considering it, too.

Democratic lawmakers and governors see it as a way to help pay for the joint federal and state insurance program that covers low-income residents as federal policy changes are expected to make the program more expensive for states and may lead to a reduction in the number of people with coverage.

Proponents also say it’s about fairness because employers benefit from having some lower-income workers with taxpayer-funded health coverage.

Business groups object. So do some liberal policy organizations.

New Jersey is putting the fee in place

New Jersey Gov. Mikie Sherrill signed a measure Tuesday night to charge employers that have at least 50 workers covered by Medicaid, and the state budget she approved earlier in the week counts on raising $145 million this year from the program.

Under the plan, companies will be billed for each employee and employees’ dependent receiving Medicaid, the joint state-federal insurance program.

The fees per person would start at $325 a year for companies with 50 to 249 Medicaid beneficiaries and top out at $725 annually for employers with at least 500 recipients.

Federal Medicaid changes are prompting Democratic-led states to act

A bill passed this week in California doesn’t impose a charge now, but it does direct the state administration to present lawmakers options for doing so next year.

Finishing the job would fall to the successor of Gov. Gavin Newsom, a Democrat who is leaving office in January. Democratic gubernatorial candidate Xavier Becerra has made an employer charge part of his election platform.

State Sen. John Laird, a Democrat who sponsored the California proposal, said the big tax and policy law President Donald Trump signed a year ago was a major factor in the need for action because it could prompt the state to spend more on Medicaid to plug holes left by federal changes.

The nonpartisan Congressional Budget Office expects more than 10 million people will be uninsured because of the law by 2034. It requires some beneficiaries to work, be in school or volunteer — and requires even more to document whether they meet the requirements. Most employees at the bigger companies would not be at risk of losing Medicaid coverage as long as they’re working at least 20 hours a week.

Laird also said there’s an equity issue involved.

“If you’re a small business person in California, you are quite likely paying for health insurance for your employees. And through your taxes, you’re paying for health insurance for some of the biggest employers in California,” he said. “And that’s not fair.”

Legislation with similar intents passed one legislative chamber in both Colorado and Oregon this year, but neither made it to law. A measure was also introduced in Washington.

Connecticut Gov. Ned Lamont, a Democrat who is seeking a third term in November’s election, has called for the same move there with the idea of making it a part of the state budget that would kick in two years from now.

Opposition comes from business and some liberal groups

It’s no surprise that business organizations have criticized the approach, which would add to their expenses.

“The fact remains that many job-creators are still going to be penalized for something they have no control over,” Christopher Emigholz, the chief government affairs officer at the New Jersey Business and Industry Association, said in a statement. “If an employee declines an employer-provided health plan because they’d rather be on Medicaid, it is unfair to penalize the employer for that employee’s decision.”

Some left-leaning policy organizations also oppose the charges.

Gideon Lukens, who analyzes health policy at the left-leaning Center on Budget and Policy Priorities, said that while the idea may be well-intentioned, it could lead companies to employ fewer people from low-income household or single parents. He said companies could also consider the policy in decisions about whom to hire or lay off — and also on where to locate or how many workers to employ.

And, he said, it could make employees — or potential employees — less likely to enroll in Medicaid knowing it would make them less attractive to employers.

“Usually, when I see a tax on something it’s going to discourage whatever being taxed,” he said in an interview.

New Jersey’s legislation tries to address some of the concerns. It would exempt temporary, seasonal and part-time employees. It would also bar employment decisions based on a workers’ Medicaid status.

The idea has come up before, though it’s never stuck for long

Charging companies whose workers are covered by Medicaid isn’t a new idea. At least two states have previously enacted it, and it’s been proposed in Congress.

Massachusetts lawmakers in 2017 adopted a charge on employers up to $750 per nondisabled worker who was covered through Medicaid or a state-subsidized health exchange plan. The program began in 2018 was not renewed when it expired the next year.

An even earlier policy in Maryland, in 2006, immediately affected only Walmart. An industry group challenged it in court and won, stopping the fees. A federal judge found that it required the company to track and allocate employment benefits differently in Maryland than in other states in violation of a federal law that governs self-insured employee health plans.

The latest generation of proposals may avoid that legal pitfall by not referencing those health plans in the legislation.

This story was originally featured on Fortune.com