Analysis: Partisan and Labor Politics Drive Battle Over Health-Benefits Reform

Mark J. Magyar | November 26, 2014 | Budget, Politics
Big question is whether Christie, Legislature set health-benefit payments or unions get back collective-bargaining rights

As Gov. Chris Christie’s Pension and Health Benefits Study Commission wrestles with the issue of how much public employees should pay toward their health insurance, New Jersey’s public-employee unions are focused not only on how much they will pay, but also on making sure they win back the right to collective bargaining on healthcare issues.

It is an issue that bitterly divided the Democratic Party and the labor movement four years ago, and its resolution poses political risks for Christie’s quest for the Republican presidential nomination and the expected gubernatorial candidacy of Senate President Stephen Sweeney (D-Gloucester).

Over the furious objections of union leaders, Chapter 78, the 2011 revision to the state’s pension and health benefits law, suspended collective bargaining on health coverage for four years, and required public employees to pay significantly more for their health insurance — from 3 percent for employees making under $25,000 to 35 percent for those making over $110,000.

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As a result, the state’s public employees are now paying more out-of-pocket for individual health insurance policies and the 10th-highest amount for family coverage in the nation, and a higher percentage than many private sector employees in New Jersey, a NJ Spotlight analysis showed.

However, for state workers and about one-third of New Jersey’s teachers, police, firefighters, county and municipal employees that four-year mandatory payment schedule — and the four-year suspension of collective bargaining on health benefits — ends July 1, 2015.

Unless Christie and the Democratic-controlled Legislature pass new laws extending the current health payment schedule or imposing a new one, public-employee unions across the state will begin negotiations on new contracts with the Christie administration, local school districts, county freeholder boards, and municipal governments with the issue of health benefits back on the table.

But after Christie’s unilateral decision to cut $2.4 billion in pension payments that were promised as a tradeoff for the higher pension and health-benefit contributions that public employees have made, Sweeney and other Democratic legislative leaders are in no mood to negotiate.

For taxpayers, public employees, and political leaders alike, the stakes are high.

The question of whether — and how — public-employee unions get to negotiate over health coverage is a critical issue in determining whether state and local government workers will pay more toward the cost of their health insurance. Christie held out for legislation setting health-premium contributions on a statewide basis because he believed veteran union negotiators would run roughshod over volunteer school board members and part-time municipal officials and push most of the costs onto property taxpayers.

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Most teachers, police, and state employees are currently paying 5 percent to 12 percent of their salaries toward their health premiums as a result of Chapter 78, according to Raphael Caprio, director of Rutgers University’s Bloustein Local Government Research Center.

The decision over whether to allow collective bargaining on healthcare to resume also will go a long way toward determining whether new incentives will be offered on a statewide basis to induce public employees to switch from traditional plans to less costly policies with higher deductibles before the “Cadillac tax” to be imposed under President Obama’s Affordable Care Act hits in 2018.

The pension and health-benefits panel that Christie appointed last summer projected that the 40 percent excise tax that would be imposed on public and private health insurance policies costing more than $27,500 for families and $10,200 for individuals would cost New Jersey’s State Health Benefits Plans — which insure all state government workers and many county, municipal, and school employees — $58 million in 2018 and $284 million by 2022.

Christie made it clear in his “No Pain, No Gain” summer tour that he believes New Jersey public employees should pay more for both their pension and health benefits, and that the 2011 pension and health benefits law he proudly touted to national audiences as a “bipartisan solution” was just a “first step to solving the problem.”
Christie first rose to Republican superstardom on the basis of his vitriolic YouTube attacks on teachers unions, and public employees, and he would like nothing more than to continue to bar state and local government workers from renegotiating their health care contributions — especially because Wisconsin Gov. Scott Walker, a potential rival in the 2016 GOP presidential primaries, made his reputation by virtually eliminating collective bargaining by public-employee unions altogether.

State worker contracts expire June 30, 2015, and Christie — who has the authority to negotiate state employee contracts without input from the Legislature — has every incentive to push for punishing concessions he can point to in Iowa and New Hampshire. Four years ago, Christie forced the state-government unions to accept contracts that included no raises in Fiscal Years 2012 and 2013, a 1 percent raise in FY2014, and a 1.75 percent raise for FY2015. That four-year combined raise of 2.75 percent that was dwarfed by out-of-pocket health premium and pension payments averaging 6.5 percent to 11.5 percent that most state workers paid as a result of the 2011 law.

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However, Christie would need the support of the Democratic-controlled Legislature to extend the suspension of collective bargaining on public employee health insurance issues, and that is unlikely: Sweeney, Assembly Speaker Vincent Prieto (D-Hudson), and other top Democratic legislative leaders have made it clear for the past year that they believe public employees in New Jersey are now paying their fair share toward their pension and healthcare costs.

Christie’s decision to ignore the requirements of the 2011 law by cutting $2.4 billion in pension payments in order to balance his budget after income tax revenues plummeted last spring — and his refusal to consider Democratic proposals for tax increases on the wealthy and corporations as an alternative — further steeled Democratic opposition to making public employees pay more.

Sweeney felt personally betrayed by Christie. The Ironworkers Union leader put his political career on the line by leading a coalition of South Jersey, Essex and Hudson County Democrats to team with the state’s Republican legislators to pass the controversial pension and health benefits law in June — a decision that cost him the endorsement of the New Jersey State AFL-CIO.
“The unions wanted us to vote separately on the pension bill and the health benefits bill, but Christie made it clear he wouldn’t sign any bill unless it required public employees to pay more for their health benefits,” Sweeney said. “And I knew Christie would have been happy to stop paying into the pension system and let the whole system go under.”

The unions were not happy about plans by Christie and Sweeney to increase pension contribution rates from 8.5 percent to 10 percent of salary for police and firefighters and from 5.5 percent to 7.5 percent for all nonuniformed workers to address the pension system’s unfunded liability, but pensions had always been set by statute.

Health benefits, however, had always been collectively bargained by the unions, and that was a right they were determined not to give up — especially with public employee unions and community activists occupying the Wisconsin Statehouse in Madison to protest Walker’s plans to permanently strip his state’s unions of their collective-bargaining rights.

The Communications Workers of America, preemptively offered to increase state workers’ health-premium contributions to 13.5 percent but Christie refused because he wanted legislation that would apply to both state and local government employees, including teachers and police.

Sweeney’s backchannel negotiations with public-employee union leaders came up short, union officials recalled privately. Both sides discussed — but could not reach agreement – on a compromise that would have set up a “statewide bargaining table” that would have all of the state and local government unions together to negotiate health-benefits issues — thus allowing New Jersey to avoid following Wisconsin’s political lead.

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After the backchannel negotiations broke down, Sweeney put together a health-premium payment schedule based on “ability to pay” that ranges from 3 percent to 35 percent of premium. Christie had demanded an immediate 30 percent across-the-board contribution, but he accepted a four-year ramp-up to an average cost share of about 25 percent for public employees and a paltry $10 million in state budget savings the first year.

The compromise represented the most progressive plan in the nation: Police officers making $110,000 are paying almost 12 times as much for family coverage as ward attendants in state psychiatric hospitals earning $24,000. That is a much larger range than the 5-to-1 differential for equally high- and low-salaried workers in the nine states that base their health-premium payments on percentage of salary. The other 40 states simply charge all of their workers the same premiums regardless of how much they earn.

“As a result of the 2011 law, most public employees have seen very little income growth in the last four years,” Caprio noted. “Hundreds of thousands of New Jersey wage earners lost 5 percent to 10 percent out of their paychecks as a result of the new healthcare contributions — and most police and teachers were on the higher end of that scale because they earn higher wages. Add on another 1.5 percent or more taken out for pensions, and a 2 percent cap that is limiting pay raises, and it’s no wonder the state economy is lagging.”

While all state employees are already paying the fourth-year maximum under Chapter 78, the phase-in to the full premium contribution for some teachers, police, firefighters, county and municipal workers will not take place until 2017, said Steve Wollmer, communication director for the New Jersey Education Association.

“Under Chapter 78, everyone has to go through the four tiers,” Wollmer explained. “But in cases where a new collective-bargaining contract had just been signed, the phase-in does not start until the next contract, so some are just getting started. Typically, one-third of local contracts come up for renewal every year.”

If unions retain the right to negotiate healthcare issues, most local contract negotiations are likely to focus on getting or keeping the cost of health insurance policies below the $27,500 threshold for family plans and $10,200 level for individual coverage that would trigger the “Cadillac tax” by 2018.

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