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Analysis: NJ Public Employees Pay High Percentage of Healthcare Costs

Under 2011 law, employee healthcare contribution are based on ‘ability to pay’ with sliding scale ranging from 3 percent to 35 percent of premium

Three-and-a-half years ago, the state Pension and Health Benefits Study Commission appointed by Gov. Chris Christie would have had an easy time arguing that public employees should pay more toward their healthcare, as Christie has asserted.

At that time, the average state worker was paying just 3.6 percent of health premium costs, and some teachers, police, and local government employees were paying nothing at all, toward some of the most expensive healthcare policies in the country.

Today, however, while the cost of New Jersey public employee health insurance coverage remains the third-highest in the nation, most New Jersey public employees are paying more than the national average for state government workers toward their health insurance costs, an NJ Spotlight analysis shows.

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In fact, the average New Jersey government employee is paying more for individual health insurance coverage than government workers in any other state and the 10th-highest average premium for family coverage in the country.

Further, state and local government workers are paying a much higher percentage of the cost of their individual health insurance policies than private-sector employees in New Jersey have been paying, and not much less than the percentage paid by the state’s private-sector workers for family coverage.

The health benefit payment schedule set by Senate President Stephen Sweeney (D-Gloucester) as part of the controversial 2011 pension and health benefits overhaul established a complex premium-sharing formula based on “ability to pay” that is the most progressive in the nation -- one that ranges from a low of 3 percent of premium cost for those earning under $25,000 to a high of 35 percent of premium for those making over $110,000 for family coverage.

“Public employees are paying more for their health insurance in New Jersey than in most other states, but we made sure that the premium schedule is based on ability to pay. That’s important going forward,” Sweeney said in a comment aimed squarely at Christie’s pension and health benefits panel.

The bipartisan commission was formed primarily to come up with a long-term plan to address the $90 billion unfunded liability in pension and retiree health benefits that has led to a record eight credit downgrades on Christie’s watch. The governor’s executive order also gave the panel a broad mandate to examine the health benefits for current employees.

Consequently, the commission’s interim report focused not only on the unfunded liability, but also on the rising cost of public employee health benefits, the problem caused by most government workers choosing more expensive traditional plans over less costly preferred provider options, and the impact of the “Cadillac tax” on high-cost health insurance plans that will be imposed under the Affordable Care Act beginning in 2018.

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But the question of whether New Jersey public employees are paying a proper share of premium costs was not addressed by the commission’s interim report.

The issue is both complex and politically charged, as could be seen in the blowup that came after the Pew Charitable Trusts and the MacArthur Foundation published the first comprehensive study of “State Employee Health Care Spending” in August.

Christie, who had staged a “No Pain, No Gain” summer tour to drum up public support for cutting state worker pensions and benefits, immediately seized upon the Pew report to declare that New Jersey taxpayers were paying 91 percent of the cost of public employee benefits. “New Jersey taxpayers pay a greater share than all of our neighbors,” Christie declared.

It was a statement that Christie -- who has been trumpeting the cost savings from the 2011 pension and health benefits law to national audiences for three years -- knew or should have known to be erroneous, as Hetty Rosenstein, state director for the Communications Workers of America, the state government’s largest union, was quick to point out.

Pew quickly amended its study to note that New Jersey was in the middle of a complex four-year phase-in of employee health premium contributions in the 2013 calendar year when it made its comparisons. In fact, by the time the Pew study was published, New Jersey state government workers were already in the final year of a phase-in schedule under which the share of health premiums for a state employee making the average salary of $67,000 ranged from 19 percent for family coverage to 23 percent for member/spouse and parent/child policies to 29 percent for individuals.

Matt McKillop, senior associate for Pew’s state healthcare spending project, and Jason Richwine, coauthor of a recent American Enterprise Institute study on public employee compensation, both said New Jersey was the only state in the nation that has been phasing in a new health premium schedule on a multi-year basis, and that they knew of no other state that had changed state employee health premium payments since Pew’s analysis of the 2013 data.

Today, a New Jersey state worker making the average salary of $67,000 is paying 29 percent of the premium cost for an individual policy -- almost two-and-a-half times the 12.1 percent national average for state government employees with individual coverage, and third in percentage behind only Hawaii and New Mexico. Furthermore, the $220 per month the average New Jersey state worker would have paid out-of-pocket is three times the 2013 national average of $69 per month and more than twice as much as the $104 per month paid by the average New York State worker last year, NJ Spotlight’s analysis showed.

Meanwhile, the average New Jersey state employee is paying just 21 percent toward the cost of family health insurance premiums (defined in the Pew survey as both family coverage and member/spouse, parent/child plans) -- a percentage that is higher than the national average of 18.7 percent, but ranks 23rd in the nation and is lower than New York, Massachusetts and California. New Jersey’s S328 average premium for family coverage would have ranked 11th in the nation -- $195 less than first-place Hawaii and $50 less than New York.

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What distinguishes New Jersey from every other state is the highly progressive premium payment schedule that Sweeney inserted into Chapter 78, the 2011 pension and health benefits law he sponsored and pushed through the Legislature over union opposition with the unanimous support of the Republican minority and a coalition of South Jersey, Essex, and Hudson County Democratic votes.

Under Sweeney’s plan, New Jersey state government employees who were then paying a minimum of 1.5 percent of salary or 1.5 percent of premium cost -- whichever was larger -- toward their health insurance would now be required to pay from 3 percent to 35 percent of their premium costs as of July 1, 2014, when the four-year phase-in would be complete. Teachers, police, firefighters, and county and municipal government employees were required to pay the same percentages, but on a staggered four-year phase-in schedule that would begin as their local union contracts expired.

“Governor Christie wanted every public employee to pay 30 percent of healthcare costs, but I looked at it, and there was no way a state worker making $22,000 a year could afford to pay that kind of money for health insurance,” Sweeney said. Under Christie’s plan, a $22,000-a-year attendant in a state psychiatric hospital would have had to pay $6,000 toward the cost of a $20,000 family plan.

“The point was ability to pay,” Sweeney said. “I think 35 percent is too much, but to get the governor to agree, we had to give him an extra 5 percent on those making over $100,000. We ran the numbers and it worked.”

New Jersey’s health benefits premium plan works like a progressive income tax: A state worker making $20,000 would pay just $562 toward the $18,732 average cost of a family plan, while a senior executive earning over $110,000 would pay $6,556 toward the cost of the same policy.

Only nine other states -- New York, Pennsylvania, Illinois, Kansas, Maine, New Mexico, Oregon, Rhode Island, and West Virginia -- factor “ability to pay” into their health premiums by basing payments on a percentage of salary, McKillop said. Their formulas, however, are only half as progressive as the one designed by Sweeney.

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Under the 2011 law, New Jersey is also one of the few states in the country that charges a lower premium percentage for family coverage than for individual plans. New York, for example, charges 25.6 percent of premium for family plans, compared to 17 percent of the cost of individual coverage.

Sweeney said New Jersey’s law “was intentionally designed to make it more affordable for workers with families. Again, it’s based on ability to pay. A single worker making $50,000 has more disposable income than an employee with a family and can afford to pay a higher share of his health insurance cost. We took that into account.”

Sweeney’s formula is starkly different from the approach taken by Southern states like North Carolina and Mississippi, which charge a national high of 51 percent for family plans, compared to 3.3 percent and 8.95 percent, respectively, for individual coverage. In Texas, where state employees pay 27 percent of family health insurance premiums, individual coverage is free.

“I thought those Southern red states were supposed to be pro-family,” Steve Wollmer, communications director for the New Jersey Education Association, said pointedly.

McKillop, the Pew analyst, said providing low-cost individual plans while charging high premiums for family coverage is “one strategy states have used to influence costs because the marginal cost of covering dependents rises pretty quickly. States like North Carolina and Mississippi jump out. But we also say in our report that there are potential negative consequences to making family insurance coverage so much more expensive than individual employee coverage. It increases the likelihood of uninsurance” – and that cost eventually falls on taxpayers and hospitals as uncompensated care.

Christie’s pension and health benefits commission focused on the high price of public employee health insurance. The panel noted in its interim report that the average state government health insurance premium for both family and individual plans was $1,334 per month in 2013 -- the third-highest cost in the nation after New Hampshire and Alaska, and $371 a month higher than the national average.

However, Dudley Burdge, a CWA staff representative who serves on the State Health Benefits Commission, noted that “healthcare costs in New Jersey are high because the entire state falls within either the New York or Philadelphia healthcare market. New Jersey’s costs are not out of line.”

Burdge’s analysis is buttressed by data from the U.S. Agency for Healthcare Research and Data showing the average cost of private sector family plans in New Jersey ranked fourth-highest in the nation after Alaska, New York, and Massachusetts. New Jersey’s individual private sector policies were the fifth-costliest after Alaska, Wyoming, Massachusetts and New Hampshire.

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A comparison of the federal data for New Jersey private-sector employees with Pew’s state government report shows that private-sector employees paid an average of $374 per month for family health polices costing an average of $1,450, while government workers paid $328 toward policies averaging $1,561 per month.

The real difference in premium and cost share was in individual coverage, where New Jersey public-sector employees pay twice as much toward policies that cost almost one-and-a-half times as much. The average New Jersey private-sector employee last year paid $105 per month toward a policy that cost an average of $517, while state workers would have been paying $220 out of an estimated $758 monthly premium as of July 1, 2014.

The commission acknowledged in its interim report that high healthcare costs in the region will keep New Jersey government health insurance costs higher than the national average. For example, a spinal cord procedure that runs $11,851 in other Northeastern states and $16,708 in Western states costs $28,428 in New Jersey, the panel acknowledged. Meanwhile, a back procedure that would cost an average of $10,482 in the Northeast and $17,016 out West is a $22,397 operation in New Jersey.

Even with those high costs built in, however, the commission zeroed in on the fact that the “State Health Programs provide generous benefits with little pricing incentive for employees to select anything but plans with the most comprehensive coverage and highest cost to the State.”

In 2014, for example, “for an employee earning $60,000, there is only a $44 difference in monthly cost to the employee between NJ DIRECT15 and NJ DIRECT2035 -- a plan which over the course of a year would cost the State thousands of dollars,” the panel pointed out.

As a result, more than 80 percent of the participants in the State Health Benefit Plan are enrolled in the most expensive traditional healthcare plans. And while 17 percent of public- and private-sector workers nationally select low-cost, high-deductible plans, only 137 of the 242,827 current and retired employees enrolled in New Jersey’s state health benefit programs do so, the commission noted.

Based on those comments in the interim report, union experts expect the Christie commission to focus on recommendations to change the incentives in the State Health Benefits Plan to steer more employees toward less costly coverage -- a shift that the union-management Plan Design Committees set up under the 2011 law have yet to achieve.

Achieving that shift is critical, the commission contends, because the state needs to find ways to keep costs below the $27,500 threshold for family coverage and $10,200 limit for individual plans that could trigger a “Cadillac tax” -- a 40 percent excise health insurance tax on health insurance policy costs above that level -- under President Obama’s Affordable Care Act.

The commission projected that the Cadillac tax could “increase the State Health Programs’ costs by an additional $58 million in FY2018, rising to $284 million by 2022.”

Burdge said such projections are premature because provisions built into the Affordable Care Act that would provide credit for employers whose workforces are older or more heavily female than the national average could keep New Jersey’s state government and school districts below the Cadillac Tax threshold.

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