New Jersey Takes Big Step to Shore Up Insurance Market

New Jersey enacted an important new law yesterday to protect its insurance market from harmful federal changes, becoming the first state since Massachusetts in 2006 to require residents to have health insurance.

The 2017 tax bill repealed the Affordable Care Act’s (ACA) individual mandate (the requirement that most people have health insurance or pay a penalty) beginning in 2019. By reducing incentives for healthier people to get coverage, the mandate repeal will weaken the individual-market risk pool and, the Congressional Budget Office estimates, raise premiums by 10 percent and cause millions of people to become uninsured. The mandate loss would cause New Jersey’s individual insurance market enrollment to fall by 23 percent and premiums to rise by 11 percent, an Urban Institute analysis projects.

New Jersey’s new law, to be implemented next year, mirrors the federal requirement that people have ACA-compliant coverage or report exemptions and penalties on their tax returns. To support this requirement, employers, insurers, and the state Medicaid agency will report, to the state, the months that individuals had coverage. The state will award exemptions to people who have low incomes or unaffordable coverage, are non-resident tax filers, or have other hardships. The penalty structure is the same as under federal law.

New Jersey also enacted a law to create a reinsurance program, contingent on federal approval of an ACA state innovation waiver (known as a Section 1332 waiver). Reinsurance reimburses insurers for some of the costs associated with the highest-cost enrollees; New Jersey’s program is expected to reduce premiums by 10 to 20 percent. The reinsurance program will be partially funded by individual mandate penalties.

The mandate and reinsurance program complement existing state laws that will help protect New Jersey’s individual market from harmful federal changes, including a prohibition on short-term plans. The Trump Administration has proposed expanding these plans, which don’t have to comply with the ACA’s consumer protections and consequently offer lower premiums that attract the healthiest people, raising premiums for consumers who remain in ACA-compliant plans.

Vermont also recently enacted a law creating a requirement that people have insurance starting in 2020, with a commitment to determine the financial penalty or other enforcement mechanism in the next legislative session, after considering the findings of a working group. In February, the District of Columbia’s Health Benefit Exchange Authority unanimously adopted recommendations to establish an individual mandate and the mayor included the measure in her 2019 budget, which the City Council is expected to approve soon.