Why NRF filed suit against New Jersey’s “fair share” employer health care penalty

NRF and a coalition of business organizations filed suit challenging New Jersey’s new “fair share” employer penalty, arguing the law conflicts with federal benefits law and creates significant compliance, administrative and privacy concerns for employers. In this Q&A, Ed Egee, NRF vice president of government relations and workforce development, explains why NRF is challenging the law and what the case could mean for employers in New Jersey and beyond. 

What is New Jersey’s new “fair share” law? 

The law imposes a new penalty on employers when employees or their dependents are enrolled in Medicaid. Supporters call it a “fair share” requirement because they believe large employers should pay for the state Medicaid program. NRF and its coalition partners believe it is a new penalty on employers that create jobs, invest in New Jersey and already provide health care coverage for their employees, spouses and children. NRF and its coalition partners also believe the law was enacted in violation of federal law and has significant implementation problems. 

Is this lawsuit about employers refusing to provide health insurance? 

No. Retailers already spend billions of dollars each year providing health benefits to their employees, their spouses and their children. NRF members offer coverage that complies with the Affordable Care Act and other federal requirements, and they invest substantial resources to provide affordable and accessible health care options for workers and their families. 

The real issue is whether a state can impose a new penalty on employers based on an individual’s participation in a government program that employers don’t control. 

Why do you say employers do not control the factors that trigger the penalty? 

Under the law, New Jersey will assess a penalty against certain employers if the state determines that either the employee or the employee’s dependent is covered by Medicaid. However, employers do not determine who qualifies for Medicaid, and they have no idea whether an employee or the employee’s dependent is on Medicaid, and they have no way to verify this. Employers don’t and can’t determine household income, family circumstances or whether an employee chooses employer-sponsored coverage, Medicaid or another coverage option. New Jersey’s law attempts to penalize employers based on those individual decisions, and without the employer being able to know when or if it will be penalized. 

Why do you believe the law is illegal? 

Congress enacted the Employee Retirement Income Security Act of 1974, or ERISA, to create a uniform national framework governing employer-sponsored benefit plans. ERISA was enacted to encourage employers to provide uniform benefits to employees, regardless of where the employee lives. To do this, ERISA was enacted to prevent states from imposing different benefit requirements on employers operating across state lines. 

New Jersey’s law pressures employers to change their health plans, but only for New Jersey employees, or pay a financial penalty. NRF believes that is the type of state interference ERISA was designed to prevent. Employers that operate nationally should not, and cannot, have to redesign their benefits every time a state seeks to raise revenue through employer health care assessments. The increased cost for providing health care in 2026 is expected to be the highest it has been in years, and employers are working every day to keep the cost down and affordable for their employees and children. However, fair share laws are adding to the cost, which neither employers nor employees can shoulder.  

Why should employers outside New Jersey care? 

New Jersey might not be the last state to try this approach. If this law survives, other states could adopt similar employer penalties, reporting obligations and health care mandates. 

The result would be a patchwork of conflicting state requirements that increases costs, complexity and administrative burdens for employers operating in multiple states. That is the opposite of the uniform national system Congress intended when it enacted ERISA and will result in less, not more, employer-sponsored coverage. 

What makes the law so difficult to administer? 

New Jersey enacted the penalty before explaining how it will work. 

The first employer assessments are expected to go out in March 2027, but employers still do not know how the state plans to identify covered employees and dependents, verify Medicaid enrollment, administer exemptions or calculate assessments. It is also not clear when or if the state has resolved those issues. 

As things stand, employers could receive penalty bills based on assumptions, estimates and data they cannot verify. 

Why can't employers simply challenge an incorrect assessment? 

The law makes that difficult. 

Employers generally have no way of knowing whether employees or their family members are enrolled in Medicaid. When the state sends an assessment, it is required to tell the employer how many individuals triggered the penalty, but not who those individuals are or why they enrolled in Medicaid or what the employer could have done to prevent the penalty. 

At the same time, the employer bears the burden of proving the assessment is wrong. 

The state could send an employer a penalty bill, withhold the information needed to verify the calculation, require payment first and then require the employer to prove that the assessment is incorrect, without the employer having access to the actual enrollment data. 

Are there other implementation problems? 

Yes. Fundamental questions remain unanswered, including how individuals will be matched to employers, how disputes will be resolved, how exemptions will be administered and how employers can challenge errors. Key definitions in the law also remain unclear. 

This is not a fully developed compliance program. It is a major new penalty built on an administrative framework that has not yet been designed, and which was implemented without input from the largest health care providers in the state — employers. 

How does the law affect employer health plans? 

The law pressures employers to alter health plans already structured around federal requirements. 

As noted above, over 50 years ago Congress recognized that employers need a uniform standard so they can provide quality health care coverage to their employees. As such, federal law contains certain requirements, such as covering dependents up to age 26. However, New Jersey is effectively attempting to push employers toward different eligibility standards, including coverage considerations tied to certain dependents up to age 31. 

The law also delays certain exemptions, including those for some part-time workers, until after initial assessments are imposed, creating even more uncertainty. This is even more problematic because federal law allows employers to design eligibility criteria that fit their workforce, not that which fits into states raising revenue to fill Medicaid funding gaps. 

Does the law create privacy concerns? 

Yes. To challenge an assessment, employers may need information about employees’ Medicaid enrollment, their dependents, disability status or other sensitive health-related matters. Yet federal laws generally restrict employers from seeking exactly that type of information. 

A law should not put employers in a position where defending themselves requires navigating potential conflicts with federal privacy and employment laws. 

Is this lawsuit about employers refusing to provide health insurance?

No. Retailers already spend billions of dollars each year providing health benefits to their employees, their spouses and their children. NRF members offer coverage that complies with the Affordable Care Act and other federal requirements, and they invest substantial resources to provide affordable and accessible health care options for workers and their families.

The real issue is whether a state can impose a new penalty on employers based on an individual’s participation in a government program that employers don’t control.

New Jersey’s approach will only create uncertainty, administrative complexity and inconsistent national standards. New Jersey should rather focus on policies that encourage investment, job creation and economic growth.  

What is NRF asking the court to do? 

The plaintiffs are seeking declaratory and injunctive relief. This simply means they are asking the court not to enforce a legally questionable law. NRF and its coalition partners are asking the court to enforce federal law, preserve a consistent national framework for employee benefits and prevent implementation of a system they believe is legally flawed and operationally unworkable. 

Who is participating in the lawsuit? 

This lawsuit brings together a coalition of national business organizations that represent employers across the retail, restaurant, hospitality, franchising and broader business communities. 

The organizations participating in the lawsuit are: 

• National Retail Federation

• International Franchise Association 

• American Hotel & Lodging Association

• Restaurant Law Center

  
  Together, these organizations represent thousands of employers that provide jobs, invest in New Jersey communities and offer health coverage to millions of workers and their families. The lawsuit seeks to preserve the uniform federal framework governing employee benefits and prevent New Jersey’s law from becoming a model for other states.