"Quite a scam by the NJ tax folks and poor programming by Turbotax"
No and no.
The elected NJ state legislature decided to handle medical expenses differently than most states and the Feds. While on your federal return, the health insurance premiums paid by you and your employer are excluded from Wages (and therefore are non-taxable), any medical expenses that you do have are deductible only if they exceed 7.5% of your Adjusted Gross Income - a very high bar for most taxpayers.
While NJ does tax you on the amounts that your employer spends for your health insurance premiums, NJ also allows you to deduct any unreimbursed medical expenses over only 2% of your state AGI - a much lower bar.
I suspect that for taxpayers with a lot of unreimbursed medical expenses, then the NJ way works out much better for them.
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