NJ Public Worker Healthcare Costs to Decrease Next Year

State treasurer acclaims “good news” for property taxpayers but officials provide no estimates of taxpayer savings. Some Medicare retiree rates will rise

State Sen. Paul Sarlo (D-Bergen), left, and Gov. Phil Murphy
Health-insurance premium rates are on course to drop next year for many public workers in New Jersey, thanks to recent administrative changes that are now starting to impact the bottom line.

But even with the lower rates — and anticipated savings for many taxpayers as a result — debate over the cost of employee benefits is expected to heat up in Trenton in the coming months. (State Department of Treasury officials did not provide any estimate on the projected taxpayer savings.)

The new premium rates for 2020 were approved last week by the joint management and labor commissions that help administer health-insurance programs for employees of both local governments and school districts where the employees are insured through the state-level pools. Local governments and school districts also have the option of using private brokers to arrange employee insurance plans, and many choose to do so.

For active workers and retirees covered by the State Employees’ Health Benefits Program, the rates for medical and prescription coverage are set to drop by a combined 3.8 percent next year, according to information released late last week by the Treasury. For all workers and retirees covered by the state School Employees’ Health Benefits Program, rates will be dropping by a combined 2.3 percent.

Gov. Phil Murphy touted the lower rates as evidence that fiscal policies enacted since he took office early last year are generating savings for taxpayers. (In New Jersey, employee healthcare costs are shared by both workers and their government employers.) But lawmakers who’ve pressed for more efficiencies in employee health-insurance offerings in recent years also took credit for the savings, and said they underscore their own calls for more drastic reform.

The important numbers

Not all employees of local governments and school districts participate in the state-level health-insurance programs, but those that do see their annual rates set by the joint labor and management boards that meet in Trenton. Local government employees are eligible to enroll in the State Employees’ Health Benefits Program and school-district employees are eligible to enroll in the School Employees’ Health Benefits Program. (More than half of local government employees are enrolled in the State Employees’ Health Benefits Program, and roughly 30 percent of school-district employees are enrolled in the School Employees’ Health Benefits Program.)

Under the latest rates approved by those commissions, the medical and prescription rates for active school-district employees enrolled in the State Employees’ Health Benefits Program are dropping by 4.3 percent. Rates are also remaining flat for local-government early retirees and Medicare retirees, yielding the combined 3.8 percent reduction.

Meanwhile, for active workers in the School Employees’ Health Benefits Program, rates are dropping by 4.5 percent next year. Early retiree rates are also dropping, by 4.8 percent. But Medicare retiree rates will rise by 8.4 percent, yielding the combined 2.3 percent overall reduction. (Officials blamed the increase for Medicare retirees on a new federal tax required under the Affordable Care Act.)

Among the administrative reforms credited with helping to generate the lower rates are the new way the state manages both prescriptions drug contracts and out-of-network services. They include incentivizing vendors to find savings, Treasury officials said. Efforts have also been made to improve state oversight of medical billing and insurance-enrollment practices and conduct audits to identify ineligible enrollees, they said.

“The fiscally responsible path we’re putting New Jersey on — a dogged pursuit to lower the cost of healthcare, collaboration with our public-union partners, and bolstering our pension system — is the right one,” Murphy said in a statement.

“This is certainly good news for property taxpayers who have become accustomed to shouldering cost increases year after year,” state Treasurer Elizabeth Maher Muoio.

Sweeney notes fellow senator’s role

Senate President Steve Sweeney (D-Gloucester), in response to Treasury’s announcement, also heaped praise on lawmakers like Sen. Paul Sarlo (D-Bergen) for helping to bring attention to the need to make the administrative changes to find savings.

“The 4 percent average reductions in healthcare premiums for employees enrolled in the state health benefit plans in 2020 is just the first down payment on hundreds of millions of dollars in savings on prescription and medical payments that will be produced through the Pharmacy Benefits Manager and Third-Party Administrator programs’ claims monitoring,” Sweeney said.

It’s no surprise that Murphy and Sweeney viewed the savings in different ways as the two Democratic leaders have been locked in an ongoing debate about the cost of public-worker benefits for well over a year.

At the heart of their conflict is a strain on the state budget caused by an ongoing ramp-up in state pension contributions, which was set in motion by former Republican Gov. Chris Christie. The ramp-up is intended to address an unfunded pension liability that totals more than $100 billion by some estimates. But unfunded healthcare costs for retirees are also a significant challenge for the state, and that liability is estimated at nearly $100 billion. (The annual state budget is $38.7 billion.)

In the face of those fiscal challenges, Murphy, who took office in 2018, promised to re-establish a more cooperative relationship with public-worker unions after eight years of largely combative interactions between management and labor during Christie’s tenure. Murphy believes labor and management can work together to find ways to make savings without drastically cutting benefits.

Quest for more radical reforms

But Sweeney, a veteran Senate leader, has taken the position that more drastic reform is needed to keep employee healthcare and pension costs from taking up too big a share of the annual budget; pension costs alone are expected to rise well above $4 billion when fiscal year 2021 begins next year.

To help reduce spending on employee benefits, Sweeney is backing a series of reforms that were put forward last year by a team of fiscal-policy experts he convened; these were included in a report called the “Path to Progress.” One of the proposals calls for the establishment of a new hybrid retirement system for many new workers and those with less than five years of service that would see teachers and other government workers — but not police officers, firefighters and judges — receive a defined-benefit pension on only up to $40,000 of salary.

Other reforms backed by Sweeney would impact public-worker healthcare coverage, including a call to move workers from what would be considered “platinum” level coverage under the federal Affordable Care Act to “gold” level coverage. The classifications generally relate to how much of the cost of coverage is picked up by the patient, with platinum-level coverage leaving 10 percent to the patient and gold level leaving 20 percent.

But Murphy has not embraced the benefits changes backed by Sweeney and has instead pointed to the ongoing savings that his administration has pursued by working cooperatively with unions like the Communications Workers of America and the New Jersey Education Association. The governor has also been pushing for higher taxes, including the establishment of a millionaires tax, to help the state afford a ramp-up to full funding of the annual pension contribution by fiscal 2023.

Just last week, Murphy threw his support behind a new healthcare proposal that’s gaining steam in the state Assembly that would ease healthcare costs for teachers, in part by linking their contributions to salaries instead of premiums. That plan, which would undo some changes that were championed by Christie in a controversial 2011 law known as Chapter 78, is opposed by Sweeney.