Alert / Employee Benefits
New Jersey adopts individual mandate; Nevada settles minimum wage dispute

The health reform fight has shifted full force to the states, with New Jersey recently becoming the second state to adopt an individual health coverage mandate and Nevada finally clarifying – somewhat – the level of health insurance an employer must offer hourly employees to qualify for a lower minimum wage rate.

Lockton comment: For an overview of the shifting battleground over health policy issues, please see our May 10, 2018, webcast.

New Jersey adopts individual mandate, employer reporting of health insurance coverage

New Jersey governor Phil Murphy recently signed a bill imposing an Affordable Care Act-like individual health insurance coverage mandate on New Jersey taxpayers. The law takes effect for calendar years beginning with 2019. New Jersey thus becomes the second state, after Massachusetts, to impose an individual health insurance coverage mandate, but almost certainly will not be the last state to do so.

The law is in response to Congress’s cancellation of the ACA’s individual mandate penalty for years after 2018, and it is designed to continue to provide an incentive for New Jersey’s uninsured to obtain health insurance coverage through an employer, an ACA online marketplace, or FamilyCare, the state’s Medicaid program. By reinstating at the state level what Congress effectively rescinded at the federal level, New Jersey lawmakers hope to minimize the potentially adverse impact of Congress’s action on the state’s individual health insurance market.

Lockton comment: The ACA requires health insurers in the individual market to issue a policy to all applicants, regardless of physical condition, and to pay for treatment of the policyholders’ pre-existing conditions. To soften the blow of the risk that insurers assume under these rules, the ACA imposes an individual mandate requiring nearly all US residents to have health insurance, or potentially pay a modest tax penalty. With the federal individual mandate penalty eliminated for years after 2018, New Jersey believed too many young, healthy New Jersey residents would opt for no health insurance, adversely skewing the risk profile of the state’s individual health insurance market.

The New Jersey law simply imposes the same obligation on New Jersey residents that the ACA’s individual mandate does (i.e., have at least “minimum essential coverage,” or MEC) and levies the same penalties for noncompliance, except the penalties are payable to the state. New Jersey will provide exceptions to those for whom coverage would be unaffordable under federal standards and to those whose taxable income is below the state’s minimum taxable income. The state will make determinations of hardship exemptions for state residents.

Lockton comment: Nonresidents receive a “get out of jail free” card, under the New Jersey law. That is, the mandate does not apply nonresidents even if paying tax in New Jersey (e.g., employees working in New Jersey but living elsewhere).

The New Jersey law says federal regulations and other guidance interpreting the ACA’s individual mandate apply for purposes of the New Jersey mandate. In addition, if ever the federal government ceases to supply federal subsidies to defray the cost of individual health insurance policies in the online ACA marketplaces, the New Jersey individual mandate penalty would not be enforced.

There are two important notes for employers. First, New Jersey will require employers to report to the state the fact of their employees’ (presumably, only employees who are New Jersey residents) coverage under employer health plans providing at least MEC insurance. New Jersey seems willing to accept reports like the federal Forms 1095-C and 1095-B, or at least reports with the same information supplied, but the mechanics of employers’ submission of those forms remains to be determined.

Lockton comment: Frighteningly, the literal language of the New Jersey law seems to impose upon employers the obligation of reporting coverage even under fully insured group plans, even though it is the insurer – not the employer – who reports that coverage under the ACA on a Form 1095-B. Insurers do have the reporting responsibility for nonemployment or FamilyCare plans.

Second, the statute indicates New Jersey is unwilling to accept coverage under a multiple employer welfare arrangement (MEWA) as coverage adequate to meet the state’s individual mandate, unless the MEWA is insured under a health insurance policy that complies with state requirements.

New Jersey will have to issue significant administrative guidance to implement the new individual health insurance mandate. The state’s obligation arises Jan. 1, 2019, apparently with first reports due from employers in 2020.

Nevada Supreme Court: To pay lower minimum wage, health insurance must be worth at least $1 per hour

Nevada’s constitution allows employers to pay a lower hourly minimum wage if the employer supplies “qualified health insurance benefits” to its employees. The constitution, however, does not define “qualified health insurance benefits,” an omission that has resulted in years of litigation in Nevada.

Lockton comment: For more information on the Nevada law and its related litigation, see our Alert.

The Nevada Supreme Court recently settled the matter. The court determined that to qualify for the reduced minimum wage rate, the health insurance benefits offered by the employer must be worth the differential in the two minimum wage rates (the rate with health insurance, and the rate without). That differential is currently $1 per hour ($8.25 per hour if not offering qualified health insurance, $7.25 per hour if offering it). In addition, however, the employee cannot be asked to pay more than 10 percent of the employee’s gross taxable income from the employer for that coverage.

Lockton comment: Employers are only required to offer the coverage to employees to reap the advantage of the lower minimum wage. Whether a given employee accepts or declines the offer is irrelevant.

Unfortunately, the court left important, additional questions unanswered. For example, Nevada law says the offer of coverage has to be for the employee and the employee’s dependents at a total cost of no more than 10 percent of the employee’s gross taxable income. The court only considered the question of what qualifies as health insurance, not what tiers of coverage would be included. The plain language of the law suggests that the 10 percent limit applies to family coverage, and while the court’s opinion implies that conclusion, the court did not directly address that question.

In addition, the court also left unanswered what can be included in the cost of the coverage. For insured plans, would that include only the premiums charged or can the employer include administrative costs? The court supplied no guidance regarding how employers offering self-insured plans are to determine the cost of the plan. Presumably, employers can use a methodology similar to that used to determine the premium equivalent for purposes of COBRA premiums, but that question is also left unanswered.

In any event, employers with employees in Nevada should take the opportunity to revisit, as applicable, their medical plans offered to minimum wage employees. If the coverage is not valued at $1 per hour or more, or if employees have to pay more than 10 percent of their gross income for family coverage, employers should determine if they need to implement any changes. Unless and until there is more clarity around the questions left unanswered by the court, employers should use their best judgment and document their rationale. They may also wish to consult with their legal counsel.

Edward Fensholt, J.D. and Jay Kirschbaum, J.D.
Compliance Services

Not Legal Advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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