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Compromise Plan to Boost Oversight of Public-Worker Health Benefits

Appointment of independent monitor would allow for ongoing, regular auditing of billions that state pays annually for claims — Sen. Sarlo

Paul Sarlo
Sen. Paul Sarlo (D-Bergen)

New Jersey would hire an auditor to conduct regular and ongoing reviews of all medical claims generated by public workers under a bill lawmakers approved last week, which supporters said could lead to significant taxpayer savings.

The legislation, which still must pass the Assembly, seeks to ensure that the state is not overpaying for visits to doctors, hospital charges, and other healthcare expenses for more than 800,000 state, local and school employees and retirees. It would also provide the state access to depersonalized medical data for these individuals, which policymakers hope to use to identify future opportunities to improve care and better control costs.

But the bill, which passed the Senate 34-0 last Thursday, is less radical than originally envisioned by its sponsor, Senate Budget Committee Chairman Paul Sarlo. “This is an important bill, but it is also a compromise,” he said.

The initial version of this proposal called for substantial changes to the way the state contracts with health insurance companies for employee benefits, but the language was amended during months of discussions with officials in the state Treasury Department, who raised concerns about the practical challenges of implementing the original plan.

The resulting proposal would essentially add an independent oversight monitor to the work of these insurance companies on an ongoing basis, in an effort to better protect the state’s resources; supporters suggest it could even pay for itself through the savings generated. (After it was amended, Horizon Blue Cross Blue Shield — New Jersey’s largest health insurance company and one of two that contracts with the state to provide employee benefits — offered its support for the measure at a Senate hearing in January.)

Big potential for savings, no specifics

“This legislation will provide significant cost savings on healthcare costs by assuring real time auditing of the billions of dollars we pay out in claims every year for current and retired teachers and state, county and municipal government employees, and it will do so while providing savings both to public employees and to taxpayers,” said Sarlo (D-Bergen.)

Treasury officials praised Sarlo’s willingness to collaborate on changes and agreed the savings could be consequential. But the department declined to provide specific numbers out of concern it could influence the upcoming process to re-bid the state’s health benefit contracts, expected to take place over the next few months.

“This is part of the administration’s efforts to produce strategic, sustainable savings,” said Treasury communications director Jennifer Sciortino. “We want to thank Senator Sarlo for being willing to listen to our concerns and work in cooperation to ensure that this legislation works in the best interests of both taxpayers and public employees.”

Whatever the number, the potential savings have been factored into an anticipated $800 million in reduced spending that Gov. Phil Murphy included in his fiscal year 2020 budget proposal tied to changes in public employee health benefits. Included in these savings are nearly $12 million related to renegotiations with the health insurance providers, Treasury said.

New Jersey has contracts that took effect in 2013 with two health insurance companies — Horizon and Aetna — to provide healthcare coverage for its vast system of local and state public workers. These were three-year deals, but extended several times; a Treasury said a new bidding process is slated to begin within weeks.

Billions of dollars at stake

In all, Garden State residents are estimated to have spent $6.9 billion for these services in 2018, with $3.3 billion from state sources and the rest from school and local taxes, according to a task force Murphy assembled last year to tackle benefit reform. The state is self-insured meaning it is responsible for all the risk, or cost, associated with patient claims — as opposed to paying an insurance company to shoulder this liability. As a result, the majority of this public expenditure reflects healthcare services used by employees; the insurance companies also collect a per-patient fee for various administration services.

Under this current contract system, these insurance companies handle all aspects of the state’s health insurance work; they each assemble and manage networks of many thousands of doctors, hospitals and other healthcare professionals, and also process claims to pay these providers. There are safeguards built into these agreements, experts note, and the state hires a third-party auditor every few years to review the recent work of these contractors.

But Sarlo said more could be done upfront, or in real time, to protect the public’s interest. He believes allowing insurance companies to play both roles — as network manager and claims adjudicator — creates an inherent conflict of interest. “It’s like the fox is guarding the henhouse,” he has said repeatedly over the past year. In October he introduced his plan to reform the system.

The bill (S-3042) has since evolved to its current form, which would require the state to hire a company to review all the medical claims generated by public workers in a “regular, frequent and ongoing” oversight process. The goal is to have the system in place by January 2020.

This third-party auditor would identify and eliminate errors, recover overpayments, and ensure that providers are not paid more than they should be by the insurance companies. (Providers would be still paid by the insurance companies on the same schedule, and any discrepancies identified by the claims reviewer would be settled after the fact.) According to the bill, compensation for the medical claims reviewer could be based on a portion of what the company collects, or saves the state.

Treasury intervened

The report from Murphy’s task force supports the model outlined in Sarlo’s original legislation, which would have forced the state to scrap the current contracts and rebuild these arrangements as a “bifurcated system,” with separate entities responsible for the network management and claims adjudication portions of the work. Among a number of suggestions, the group stressed a need for “vendor accountability” and recommended shorter contracts with insurance companies, real-time auditing of the claims, and separating the network management from the payment process. But Treasury’s concerns about the feasibility of implementing this new format led to the amended bill.

Regardless of the details, the legislation reflects an escalating concern about the cost of public worker benefits, which have absorbed a growing portion of taxpayer dollars in recent years. The issue is a priority for Senate President Steve Sweeney (D-Gloucester), who has held town halls to highlight taxpayer savings proposals outlined in the “Path to Progress” report published last year by a panel of experts he assembled. That report warned that healthcare costs are likely to rise by nearly 5 percent annually, adding $700 million to the state’s tab over four years.

Some of Sweeney’s reform initiatives, launched under former Gov. Chris Christie, are already paying off. The state is estimated to save $1.6 billion over three years as a result of a reform to its public employee prescription drug benefit services, which he championed. (Last week Treasury officials kicked off a process to re-bid these contracts, as required by a court order, something legislators have pushed Murphy to expedite since last year.)

Murphy has also identified possibilities for benefit savings, including health plan changes crafted with labor leaders that he outlined in September, which he said could save $500 million by the end of 2020. Previous changes agreed to in 2017 have also resulted in hundreds of millions in anticipated savings in recent years, and no health plan premium increase for state and local workers in 2018. (The teachers union did not agree to the same deal and members saw a 13 percent premium hike last year.)

The governor is also banking on these compounding savings going forward. His FY2020 budget, which would begin in July — pending legislative approval — includes $2.7 billion for the state’s portion of employee health costs, down $600 million from what it will spend in the current fiscal year.

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