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Businesses in New Jersey could face higher health insurance premiums under legislation introduced July 6 that would impose a new state tax on fully insured health insurance premiums. NJBIA opposes the bill.

S-2676 (Vitale, D-19)/A-4389 (McKeon, D-27), would impose a new 2.75% state excise tax on fully-insured health insurance premiums for health benefits plans, MEWAs and dental and vision coverage. The bill is similar to a health insurance tax Gov. Phil Murphy proposed in his original FY 2021 budget proposal, which he put forth before the pandemic began in the U.S.

NJBIA opposes the bill because it can only increase healthcare costs for employers who have been struggling for years to continue to provide healthcare coverage to their employees despite costs rising much faster than the rate of general inflation.

“This bill will take a situation that was already difficult and make it worse,” said NJBIA Chief Government Affairs Officer Chrissy Buteas. “Businesses were struggling to afford health insurance for their workers before the pandemic hit. With an economic lockdown and slow reopening, businesses are struggling to survive. Hitting them with a tax on something as vital as health insurance is a terrible idea.”

Additionally, both Senate Budget Committee Chairman Paul Sarlo and Assembly Budget Committee Chairwoman Eliana Pintor Marin have indicated in recent public remarks that they are opposed to new taxes on the very businesses that have been decimated by the pandemic and the government lockdown. Hopefully they stay true to that commitment.

The 2.75% tax mirrors what was originally in the federal Affordable Care Act (ACA) to help pay for health insurance subsidies for qualified individuals shopping on one of the health insurance exchanges. The federal government thought better of the tax though; Congress delayed its onset twice before repealing it in 2019 on a bipartisan basis.

The state’s version of the tax would dedicate revenue to “increasing affordability in the individual and small group markets,” but it doesn’t specify how.

“Taxing a product to make it more affordable just doesn’t make any sense,” said Buteas.

That’s not to say the cost of health insurance isn’t a problem for business. In NJBIA’s 2018 Health Benefits Survey, member companies reported spending an average of $8,292 annually for employee-only plans. That’s compared to $7,044 in 2016, an increase of nearly 18%. The average cost of a family plan was reported to be $19,764, compared to $17,580 in 2016, a 12.4% increase. Small businesses with fewer than 50 employees generally saw larger increases.

But rather than helping affordability, S-2676 would make the problem worse.

“Putting a sales tax on health insurance would effectively increase costs on those employers who are trying to maintain coverage for their employees,” Buteas said. “Employers forgo profits, freeze wage increases, and delay investments in their businesses just to be able to afford the increases. At some point, the cost just becomes more than they can bear and they have no choice but to drop coverage.

“This bill, if enacted, would be a significant step backward in ensuring New Jerseyans have access to affordable healthcare,” she said.