Business groups sue to block NJ law fining big employers for workers on Medicaid

Four business industry groups have sued New Jersey in a bid to overturn a new law that requires companies with at least 50 employees covered by Medicaid to pay the state annual fees to offset the state’s cost for that publicly funded health insurance coverage.

The statute, which Gov. Mikie Sherrill signed in June, orders big employers to pay up to $725 yearly for each of their workers, and each of those workers’ dependents, who are on Medicaid. Sherrill earlier this year characterized the fees as “fines” meant to drive large employers to insure their own workers, rather than leaving the state shouldering that cost.

But in a federal complaint filed Thursday, the groups call that pressure “an unlawful intrusion” on the federal framework governing the establishment, administration, and regulation of employer-sponsored health benefit plans. They say the state law conflicts with, and so is preempted by, the Employee Retirement Income Security Act, the 1974 federal law that sets minimum standards for private-sector retirement and healthcare plans.

The Restaurant Law Center, National Retail Federation, American Hotel & Lodging Association, and International Franchise Association also argue that they cannot verify the accuracy of or dispute the fees the state charges without asking employees about their healthcare status or whether they incurred any medical costs, queries that would violate federal privacy laws.

State Treasurer Aaron Binder and Kevin Jarvis, the state’s acting labor commissioner, are named as defendants. Spokespeople for Binder did not respond to a request for comment. Thomas Wright, a labor department spokesman, and Attorney General’s Office spokesman Michael Symons declined to comment.

The business groups are seeking an injunction to block enforcement of the law. They also want a judge to nullify the state law as unconstitutional and declare it preempted by federal law.

Sherrill built the fees into her first annual state budget, and lawmakers narrowly approved the Democratic-sponsored measure with votes in both chambers split along party lines, despite warnings from one Democratic legislative budget officer that the plan had “legal implications.”

The groups noted those legislative reservations in their lawsuit.

“The economic effects of the Act — both direct and indirect — impermissibly force a private sector employer to adopt a certain scheme of substantive healthcare coverage,” attorney William J. Delany wrote for the plaintiffs.

“For employers that operate both in New Jersey and other states, the Act would require them, to avoid the fee assessment, to provide health care coverage different from healthcare coverage provided to employees in other states, leading to a patchwork of state-by-state regulation, rather than application of national standards and administration,” Delany added.