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Sarlo Announces Money-Saving Reforms of Public-Employee Medical Claims

Move, coming hot on the heels of governor’s benefit reform plan, is held out as potentially saving taxpayers hundreds of millions of dollars

Paul Sarlo
Sen. Paul Sarlo (D-Bergen)

New Jersey would hire a private company to monitor the two insurance companies that handle medical claims for the public workforce, under a plan Senate Democrats believe could potentially save taxpayers hundreds of millions of dollars over time by ensuring these firms don’t overpay providers or overcharge the state for their work.

Senate Budget Chairman Paul Sarlo said yesterday he plans to introduce legislation next week to codify the concept, which he has pushed for in recent years as part of a larger strategy to improve transparency of the state health insurance program and reduce New Jersey’s long-term pension and healthcare costs for its nearly 800,000 state, county, and municipal workers and school staff, both current and retired.

This year the state budgeted $3.4 billion to cover healthcare costs for its portion of these claims, and Senate Democrats have warned the figure could increase by as much as $700 million over five years.

Gov. Phil Murphy
Gov. Phil Murphy

But industry insiders questioned the potential for savings and suggested Sarlo’s announcement was in part political, coming just days after Gov. Phil Murphy — a Democrat who has clashed with the Democratic legislative leadership — introduced his own benefit reform plan, designed to save $274 million next year. State officials also note multiple controls, including extensive audits ever few years, already are in place to guard against overpayment of claims or other loss.

New Jersey is self-insured for government employees, meaning the state must cover the cost of medical claims, including those that exceed the amount raised through premiums and other revenue. Under the current system, the state contracts with two insurance companies — Aetna and Horizon Blue Cross and Blue Shield — to coordinate coverage networks, arrange healthcare plans, and administer the claims process for its workforce.

Conflict of interest?

The companies collect fees for their administrative work, paid on a monthly, per patient basis. According to Treasury Department records, they are also reimbursed by the state for patient claims after they cover the provider costs up front. The contracts, which officials said are designed to prevent overpayment, date to 2013 and are set to be rebid in the coming months.

Sarlo (D-Bergen) has suggested this arrangement creates a conflict of interest and that allowing insurance companies “to self-monitor the propriety of healthcare claims is like the fox guarding the henhouse.” In an effort to improve oversight, his bill — which was not publicly available yesterday — would create a system in which the company overseeing claims is separate from the entity contracting with doctors and hospitals.

“We owe it to taxpayers and to public employees to guarantee that we do not pay a dime more than we should for healthcare costs,” Sarlo said, noting the potential savings would benefit state and local governments as well.

Hiring an independent third-party administrator to monitor claims payments would also enable the state to access a trove of valuable claims data — information that it could use to build more effective coverage and benefit employee health, he said.

Sarlo’s announcement is the latest step to launch elements of the “Path to Progress,” the economic reform plan released in August by the bipartisan panel led by Senate President Steve Sweeney (D-Gloucester). The report includes recommendations on education reform, county and local services, tax structure and other state assets, as well as proposals to improve the state’s troubled public pension and benefit systems. Among its suggestions is having independent monitors for claims, as Sarlo’s bill would do.

Recent reforms have paid off

A number of reforms implemented in recent years have already had a fiscal impact on the public sector, including changes to the health plan and prescription formulary that will reduce the state’s cost by $1.6 billion over three years. The state has also changed vendors and overhauled how it pays for prescription costs, a move that has reduced spending by some $350 million annually.

And in July, state Treasurer Elizabeth Maher Muoio launched a number of other cost-cutting initiatives related to the state’s public-health benefits, including eligibility audits, efforts to find new plan efficiencies, and an audit of the insurance companies that oversee public-employee healthcare claims. As part of those initiatives, their fee structure, invoicing, and other work will be reviewed.

But lawmakers believe more can be done to identify savings in the administration of healthcare claims for the public workforce, which accounts for nearly one-tenth of the Garden State population. They said Muoio’s audits are somewhat limited in scope and look backward, while Sarlo’s bill would enable the state to monitor this payment process on a continuous, ongoing basis.

The success of the Pharmacy Benefits Program reform — something the governor also noted in his announcement Monday — in which the state is now able to challenge drug prices in real-time, suggests the savings on other medical claims could be significant, they note.

"We know that transparency works because we already have seen positive results from the ongoing monitoring of prescription drug bills through the Pharmacy Benefits Manager program," Sarlo said. "I am hopeful we can achieve large savings on hospital and other healthcare costs through the Third Party Administrator program."

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