Murphy’s Revisions to Public-Employee Health Plans Could Save Taxpayers $500M

Workers should see only slight increases to premiums, or possibly small reductions, while governor claims the deal shows what happens when cooperation replaces conflict

Credit: Edwin J. Torres/NJ Governor's Office
Gov. Phil Murphy at press conference on lowering health insurance premiums last week, with Sen. Joe Vitale in background
Gov. Phil Murphy yesterday announced changes to government-employee health plans, touting them as saving taxpayers nearly $500 million, with only slight premium increases or even some reductions for public workers.

The deal reached at the bargaining table between Murphy and union leaders will impact the healthcare coverage of roughly 800,000 public workers and retired employees in New Jersey starting in 2019. Thus, the statewide savings will be spread across teachers and municipal, county, and state workers.

In some cases, the changes will be felt by retired workers, since more of them will be moved to Medicare Advantage plans, which reduce the state’s liability by shifting the risk to commercial insurance companies. In other cases, the changes involve new products that are intended to cut costs by encouraging more workers to visit in-network doctors and specialists.

Cost savings through consensus building

Still, Murphy suggested yesterday’s agreement shows the consensus-building approach that he favors has now proven to be a successful path to finding cost savings. His predecessor, Republican Chris Christie, often employed more hardball tactics in his own struggles to fund rising employee pension and healthcare benefits. In fact, Christie had tried unsuccessfully to enact some of the same changes that were just agreed to by Murphy and the New Jersey Education Association.

“As I’ve said from day one, I believe in the power of collective bargaining and negotiating in good faith with our workforce,” Murphy said yesterday.

It remains to be seen whether yesterday’s announcement can quiet calls for more drastic healthcare changes that were aired just a few weeks ago by a group of fiscal-policy experts that was assembled by Senate President Steve Sweeney (D-Gloucester).

The process for coming up with healthcare plans for state and local government workers and school-district employees was overhauled in 2011 under a bipartisan bill that was enacted by Christie and the Democratic-controlled Legislature. Separate panels with equal representation from labor and management now have to reach consensus to bring on any changes that affect cost or the quality of cares.

Last year, the members of the panel that designs health plans for employees covered by the State Health Benefits Plan were able to strike a deal that resulted in there being no premium increases for the 2018 calendar year. By contrast, members of the committee that draws up plans for school-district employees could not reach a compromise, and the premiums for most school-district workers rose by roughly 13 percent.

Teacher premiums to dip by 1 percent

But this year, the Murphy administration said it worked with officials from the NJEA to strike a deal that will result in the school-district employees seeing a premium decrease of about 1 percent in 2019. That will come as active school-district employees are being encouraged to use a newly created plan that will incentivize visits with in-network doctors and specialists by waiving copayments. Medicare-eligible retirees are also being moved into Medicare Advantage plans, something that accounts for some $270 million of the overall projected savings for taxpayers.

“These changes are a great example of the win-win outcomes we can achieve when labor is viewed as a partner in progress and not an opponent,” NJEA president Marie Blistan said yesterday.

Meanwhile, savings of nearly $40 million are also being projected as employees enrolled in the State Health Benefits Program will continue prescription-drug formulary changes that were first adopted in 2016. Premiums for local government workers in the State Health Benefits Program will increase by 1.7 percent in 2019, and they will be reduced by 0.6 percent for active state workers enrolled in the same program, according to Treasury officials.

State and local governments will also see other savings as a result of a contract bid that Aetna recently provided the state for Medicare Advantage coverage for retired State Health Benefits Plan employees, a move that aligns with changes to worker benefits in other states that have also embraced these managed-care plans. Under these schemes, the insurance company must shoulder the risk of future medical liability — or claims costs that exceed the amount raised by premiums and other fees — a move that significantly reduces the fiscal burden on the state, Treasury officials said. Under the current plans the state is self-insured, or responsible for these potential costs on its own.

Closing in on $500 million in savings

In all, the Murphy administration’s projected savings estimate for taxpayers through the end of 2020 totals $496 million, with $274 million of that coming in 2019. Administration officials say they have not earmarked any of the state’s share to a specific expenditure in any given fiscal year. And on the local government side, they suggested cheaper healthcare costs should result in property-tax relief, since employee benefits are also a major obligation at the local level.

“This is a tremendous step in the right direction, and we look forward to continuing to work with our partners in labor to find ways to provide healthcare in the most effective, comprehensive, and cost-efficient way possible,” said state Treasurer Elizabeth Maher Muoio.

Despite the praise from the Murphy administration and union leaders, others were more tempered in their reactions to yesterday’s announcement.

A statement from the New Jersey Chamber of Commerce labeled the healthcare agreement a “positive first step,” while also pointing to the state pension system’s significant unfunded liability, which totals more than $100 billion by some estimates, as another major fiscal issue that needs attention.

“There is much more to do, but we can’t get there without taking the first step,” the chamber said.
Senate Minority Leader Tom Kean Jr. (R-Union) suggested Murphy could “build upon” yesterday’s agreement by also adopting one of the main recommendations that came out of the panel assembled by Sweeney, which is a requirement that all employees be provided up to gold-level healthcare plans instead of the platinum plans they can join under existing rules. By some estimates, such a change could save taxpayers more than $1 billion over several years.

“We are encouraged by the modest savings on health benefits announced by Gov. Murphy (yesterday) and encourage him to look at opportunities for even larger savings,” Kean said.

Additional reporting by Lilo H. Stainton