New Jersey Governor Mikie Sherrill has signed legislation requiring certain employers to pay annual fees for workers and their dependents who receive Medicaid benefits, a measure supporters say will help offset rising healthcare costs but critics argue unfairly penalizes businesses and could discourage hiring.

The new law applies to employers with at least 50 employees who are enrolled in New Jersey’s Medicaid program, NJ FamilyCare. Companies will be assessed a fee for each qualifying employee and each covered dependent. Businesses with 50 to 249 affected employees will pay $325 per person annually, those with 250 to 499 affected employees will pay $525 per person, and employers with 500 or more affected employees will pay $725 per person. Certain employees and dependents with developmental, intellectual, or permanent physical disabilities are exempt from the assessment.

The Sherrill administration has argued that the measure is intended to help finance New Jersey’s Medicaid program at a time when federal policy changes are expected to increase pressure on state healthcare spending. Administration officials have projected that the new employer assessment will generate hundreds of millions of dollars in additional revenue over the coming fiscal years.

Supporters of the law contend that large employers whose workers rely on publicly funded healthcare should contribute more toward the cost of those benefits, rather than shifting the financial burden to taxpayers.

Business groups and Republican lawmakers, however, have sharply criticized the measure, warning that it effectively creates a new tax on employers. Opponents argue the law could discourage companies from hiring lower-income workers or individuals whose families receive Medicaid benefits, while increasing the cost of doing business in New Jersey.

Legal challenges are widely expected. Opponents are anticipated to argue that the law unlawfully targets employers based on employees’ participation in a government healthcare program and could violate constitutional and employment law protections. No lawsuits had been filed immediately following the bill’s enactment, but litigation is expected in the coming weeks.