New Jersey’s Premium Tax on HMO Plans Will Rise to 5% in 2021

New Jersey’s Premium Tax on HMO Plans Will Rise to 5% in 2021

As part of the State’s 2021 budget deal, New Jersey lawmakers recently increased taxes significantly for people covered by health maintenance organization (HMO) health plans.  The budget legislation, which was signed into law by Governor Murphy, will increase the annual premium tax rate on HMOs from 3 to 5 percent beginning in 2021.  The premium tax increase is expected to bring in $102.7 million during the next fiscal year, which the state will then use to fund charity care payments to hospitals.

 

The rationale given for the tax increase is two-fold.  First, given the number of New Jersey residents directly affected by the COVID-19 pandemic and the resulting economic downturn, policymakers believe that the state’s hospitals will need more charity care support.  In addition, the measure’s sponsor, State Senator Nellie Pou (D-35), believes that since most people enrolled in HMOs in the state are also Medicaid beneficiaries, the bulk of the increased premium costs will come back to the state in higher federal Medicaid payments. 

 

While many people with HMO coverage are enrolled in Medicaid plans, the new tax will impact people and businesses with private, fully-insured HMO coverage too.  For people and businesses planning to purchase a New Jersey-based HMO plan, the tax may increase plan premiums by up to two percent beginning in the year ahead.

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