Health Benefit Savings Play Big Role in Murphy’s Proposal

Lilo H. Stainton | March 6, 2019 | Budget, Health Care
Governor says 2020 budget projects $1.1 billion in savings, largely from spending on employee healthcare

Credit: Edwin J. Torres/Governor's Office
A packed Assembly Chambers heard Gov. Phil Murphy's budget address.
New Jersey Gov. Phil Murphy is leaning heavily on projected savings from public employee health benefit plans to balance the $38.6 billion state budget he proposed for the fiscal year that begins in July.

The 2020 spending plan Murphy outlined Tuesday in Trenton includes $1.1 billion in savings predicted for the coming year, with $800 million tied to lower spending on healthcare for public workers. Another $200 million is projected to come from savings and efficiencies within various departments, officials said.

Murphy said many of the benefit savings are tied to changes the administration made in conjunction with the union officials that represent public workers, including some 800,000 state, county and school employees and retirees. The changes would also generate $400 million in savings for local governments, he said.

Several lawmakers called for legislation requiring that municipalities dedicate these reductions to offsetting property taxes.

Among the savings, state officials anticipate cutting $196 million in costs by assuring retired educators choose Medicare Advantage plans, and another $115 million through tighter controls on prescription and medical claims.

They are also counting on $217 million in reductions to be identified through ongoing discussions with the state’s Plan Design Committee, a group of administration experts and labor leaders that have been meeting since June to identify additional savings.

The governor credited labor leaders for their role in generating these cost reductions, which he said would free up funding for other priorities.

“Much of these significant savings were achieved through cooperation with our public employees rather than through confrontation,” Murphy said in his speech before the state Assembly and Senate. “Growing up in our family, the only way we could spend money is if we saved money. I know a lot of New Jerseyans understand that.”

Focus on savings, not just tax increases

The idea of identifying savings — instead of relying on new revenue, like the controversial millionaire’s tax Murphy also proposed in his new budget — elicited praise from both Democratic and Republican state lawmakers. Former Gov. Chris Christie had embraced similar cost-cutting measures and included potential savings in several of his budget proposals, although not all were adopted.

Benefit changes have also long been a priority for Senate President Steve Sweeney (D-Gloucester). Last summer he and Assembly Speaker Craig Coughlin (D-Middlesex) pushed Murphy to identify more savings during a budget battle that almost led to a state shutdown.

Some of the reductions Murphy is now counting on for his new budget appear to reflect reforms Sweeney championed. One, changes to how the state bids and oversees its prescription benefit claims, is predicted to save $1.6 billion over three years. (Lawmakers have been at odds with the administration over how to re-bid a contract for certain prescription claims services, a process required by court order.)

On Tuesday, Sweeney and other Democratic leaders praised Murphy’s focus on savings and called the budget proposal a good first step. But Sweeney said the administration should look to identify other spending cuts before turning to a tax hike, including ideas proposed in a report, the Path to Progress, published last summer by a bipartisan task force he assembled.

“I’m not satisfied with getting just some” of the savings, Sweeney said. The report outlined other changes, including a shift to less-generous employee health plans, which supporters suggest could save taxpayers another $1.4 billion over several years.

Savings through benefit reforms

Sen. Steven Oroho (R-Sussex), who co-chaired Sweeney’s task force with Senate Budget Chairman Paul Sarlo (D-Bergen), agreed there are likely more savings that could be identified in the fiscal year 2020 proposal. But the work lawmakers have done to curb benefit spending appears to have had an impact on the budget Murphy crafted, he said.

“I hope the Path to Progress and everything we’ve done…has led to a more constrained budget,” Oroho said.

Murphy’s administration has also embarked on benefit reform efforts during his first year in office, such as the pension and medical plan reforms the governor announced in September, which he said would save taxpayers nearly $500 million. A number of these changes appear to account for the lower spending projections Murphy announced as part of his budget plan Tuesday.

These savings are reflected in the spending proposals for health coverage, in particular. Overall, Murphy’s new spending plan includes $2.7 billion to cover benefits for active and retired state, county and school employees; this is roughly 7 percent of the total $38.6 billion budget proposal. That’s down from the $3.3 billion the state is expected to spend in the current budget year on these services.

While some of the anticipated savings depend on further discussion with the Plan Design Committee — and may trigger a need for legislation — many of the spending reductions are tied to changes already made to public worker benefits, officials said.

Specific elements of the savings proposals include:

  • $9.6 million as a result of limits to out-of-network charges;
  • $61 million from an audit to ensure covered dependents are eligible;
  • $9.4 million from an audit to ensure employees who are eligible for Medicare benefits are using them;
  • $11.9 million from renegotiating services with the insurance companies that cover public workers;
  • $12.5 million from shifting certain lab service in network;
  • $7.9 million from an audit of the prescription services.