SENATE BUDGET AND APPROPRIATIONS COMMITTEE
STATEMENT TO
[First Reprint]
SENATE, No. 1877
with committee amendments
STATE OF NEW JERSEY
DATED: MARCH 5, 2018
The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 1877 (1R), with committee amendments.
As amended, this bill, entitled the “New Jersey Health Insurance Market Preservation Act,” restores, at the State level, the recently repealed shared responsibility tax provided under the Affordable Care Act (ACA), which requires most individuals, other than those who qualify for certain exemptions, to obtain health insurance or pay a penalty.
Specifically, the bill requires that every resident taxpayer of the State obtain health insurance coverage that qualifies as minimum essential coverage under the bill. If the taxpayer does not obtain coverage, the bill imposes a State shared responsibility tax equal to a taxpayer’s federal penalty under the ACA prior to the repeal of that provision.
To determine the State shared responsibility tax, the bill largely adopts the rules adopted pursuant to the ACA, with the following changes:
(1) The amount of the tax imposed is determined, if applicable, using the State average premium for bronze-level plans, rather than the national average premium for bronze-level plans;
(2) Instead of the United States Secretary of Health and Human Services, in coordination with the United States Secretary of the Treasury, the Commissioner of Banking and Insurance, in coordination with the State Treasurer, has the authority to recognize additional health benefits coverage as “minimum essential” coverage;
(3) For purposes of the exemption for individuals who cannot afford coverage:
- the threshold to qualify for the exemption shall be calculated based on the lesser amount that the individual would be required to pay for minimum essential coverage under either: (a) an eligible employer-sponsored plan; or (b) a qualified individual health plan;
- the income threshold for coverage to be considered unaffordable shall be determined by the State Treasurer; and
- no tax shall be imposed with respect to any applicable individual for any month during a calendar year if the taxpayer’s taxable income for the taxable year is below the State’s minimum taxable income threshold;
(4) No tax shall be imposed with respect to any applicable individual for any month during which the individual is a bona fide resident of another state;
(5) Determinations as to religious conscience or hardship exemptions shall be made by the State Treasurer;
(6) A grandfathered plan shall qualify as minimum essential coverage only if it satisfies the requirements that apply to non-grandfathered plans sold in the market in which the grandfathered plan is sold;
(7) If a taxpayer is subject to both the State shared responsibility tax and the federal penalty, the taxpayer is allowed a credit against the taxpayer’s State gross income tax obligation for that taxable year, in the amount of the taxpayer’s federal penalty payment; and
(8) Health coverage provided under a plan obtained through an association, trust, or multiple employer arrangement, including an out-of-State trust or association, shall not qualify as minimum essential coverage unless the plan complies with the requirements of applicable New Jersey law.
Additionally, the State shared responsibility tax imposed by the bill is to be assessed and collected in the same manner as under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. However, any funds collected under the bill shall not be gross income tax revenue for purposes of N.J.S.54A:9-25 and, accordingly, shall not be dedicated to the Property Tax Relief Fund.
The State Treasurer will establish a program for determining whether to grant a certification that an individual is entitled to an exemption from either the individual responsibility requirement or the tax by reason of religious conscience or hardship.
Any funds collected pursuant to the bill shall be deposited in the New Jersey Health Insurance Premium Security Fund created pursuant to Senate Bill No. 1878 of 2018, which establishes an individual health insurance reinsurance plan. If that fund is not created, the funds collected pursuant to the bill shall be deposited in the Health Care Subsidy Fund for subsidized children’s health insurance in the NJ FamilyCare Program to maximize federal funding under Title XXI of the federal Social Security Act, subject to the approval of the Director of the Division of Budget and Accounting in the Department of the Treasury.
The bill also expresses the Legislature’s intent as to the collection of data necessary for the successful implementation of the tax imposed by the bill. The bill provides that the reporting requirement is necessary to protect various compelling State interests.
Accordingly, the bill provides that, for purposes of administering the tax on individuals who fail to maintain minimum essential coverage, every applicable entity, including employers and insurers, that provides minimum essential coverage to an individual during a calendar year shall, at such time as the State Treasurer may prescribe, make a return with information about individuals and their coverage. The return is to be in the form the State Treasurer prescribes, and contain the name, address and Social Security number or taxpayer identification number of the primary insured and the name and Social Security number or taxpayer identification number of each other individual obtaining coverage under the policy; the dates during which that individual was covered under minimum essential coverage during the calendar year and such other information as the State Treasurer may require. To minimize the reporting burden, the return may also be in the form of a return under the ACA.
The bill also provides that, not earlier than November 1 nor later than November 30 of each year, the State Treasurer, in consultation with the Commissioner of Banking and Insurance, shall send a notification to each taxpayer who files a gross income tax return indicating if the taxpayer or one of the taxpayer’s dependents is not enrolled in minimum essential coverage as required by this bill. That notification shall contain information on the services available to obtain coverage.
The bill takes effect on January 1, 2019.
COMMITTEE AMENDMENTS:
The committee amended the bill as follows:
- Remove certain definitions, including terms already defined under the “New Jersey Gross Income Tax Act”;
- Remove the provision in the bill that provides that “minimum essential coverage” shall include, in addition to the types of coverage included under 26 U.S.C. s.5000A, the coverage required pursuant to the New Jersey Individual Health Coverage Program, since that coverage is already included as “minimum essential coverage” under the federal law;
- Clarify the language concerning if a taxpayer is subject to both the tax imposed by the bill and the federal penalty under 26 U.S.C. s.5000A for a taxable year, the taxpayer is allowed a credit against the tax otherwise due for the taxable year under the “New Jersey Gross Income Tax Act,” in an amount of the taxpayer’s federal penalty payment;
- Provide that for any taxable year in which federal premium tax credits, available pursuant to 26 U.S.C. s.36B, enacted as part of the Affordable Care Act, become unavailable due to the federal government repealing that section or failing to fund the premium tax credits, the State shared responsibility tax shall not be enforced;
- Provide that any funds collected under the bill shall not be gross income tax revenue for purposes of N.J.S.54A:9-25, thereby clarifying that such funds will not be deposited in the Property Tax Relief Fund as required by that law, but instead shall be used as directed in the bill;
- Stipulate that, if the Commissioner of Banking and Insurance does not establish a health insurance reinsurance plan pursuant to Senate Bill No. 1878 of 2018, the funds collected pursuant to the bill shall be deposited in the Health Care Subsidy Fund for subsidized children’s health insurance in the NJ FamilyCare Program to maximize federal funding under Title XXI of the federal Social Security Act, subject to the approval of the Director of the Division of Budget and Accounting in the Department of the Treasury; and
- Clarify internal cross-references that link the State shared responsibility tax with the provision that provides for a State gross income tax credit available to taxpayers who incur both the State shared responsibility tax and a federal penalty per 26 U.S.C. s.5000A, in a taxable year.
FISCAL IMPACT:
The OLS concludes that the bill will have an indeterminate net impact on State finances. The State shared responsibility tax will generate additional revenues to be deposited in the New Jersey Health Insurance Premium Fund, created pursuant to Senate Bill No. 1878. Enactment of the bill may cause some individuals, who would otherwise drop their health insurance, to maintain their NJ FamilyCare coverage thereby maintaining State expenditures at a higher level. Some individuals may decide to purchase health insurance in order to avoid paying the State shared responsibility tax. To the extent that these individuals enroll in NJ Family Care, the State will incur additional costs. Changes in the number of individuals who have health insurance may also result in a reduction in State Charity Care expenditures. The OLS cannot predict how many individuals will not maintain their health insurance after the repeal of the individual health insurance mandate or the number of individuals who may be incentivized to obtain health insurance in order to avoid paying the State shared responsibility tax.
Data on the number of New Jersey resident taxpayers who may be required to pay the State shared responsibility tax are not available at this time. According to the federal Centers for Medicare and Medicaid Services, approximately 244,000 individuals in New Jersey had effectuated coverage through the ACA Marketplace as of March 2017. Internal Revenue Service data for Tax Year 2015 show that 188,750 New Jersey tax returns were subject to the federal shared responsibility payment, remitting a total of $93.3 million.
The Departments of the Treasury and Banking and Insurance may incur additional administrative costs, in indeterminate amounts, associated with implementation of the bill.