To the surprise of the entire New Jersey State Legislature as well as school districts and school staff, the Murphy Administration’s reform bill intended to contain healthcare premium costs is going to end up costing taxpayers way more than anyone thought. Why? Because officials from the Treasury Department are about to greenlight a premium hike of 24% with Horizon Blue Cross Blue Shield, the state’s largest insurer with 3.8 million members, despite outcries from municipal and school representatives.

That’s not the way this was supposed to work.

Let’s back up. In 2019 New Jersey Education Association and former Senate President Steve Sweeney negotiated a bill called Chapter 44, which replaced an older Christie Administration bill (Chapter 78) that linked staff contributions for healthcare costs to a percentage of premiums, from 3%-35% of the premium and never less than 1.5% of the employee’s salary. The new bill, passed in 2020, ties staff premium contributions to a specified percentage of an employee’s annual base salary: (1.7% to 7.2% but never less than 1.5%) and cuts out-of-network reimbursements in order to offer teachers lower premiums. It was supposed to save money for everyone, as much as $300 million-–taxpayers (who support local schools through property taxes), teachers, and districts (who would benefit from cheaper healthcare plan premiums).

NJ Spotlight recalls that in 2019 Murphy praised the healthcare reforms he had negotiated with NJEA and other public worker unions: “The fiscally responsible path we’re putting New Jersey on — a dogged pursuit to lower the cost of health care, collaboration with our public union partners, and bolstering our pension system — is the right one.” Then-NJEA President Marie Blistan added,“this law is a win-win-win for NJEA members, our students and New Jersey residents.”

Not so much.

North Jersey reported in May the state, for instance, estimated Ridgewood Public Schools District would save about $4.7 million in health benefits under the new plan but the actual savings are only $27,000. Lower Township in Cape May County said the new health plan will cost its school district an additional $44,000. Gloucester City in Camden County said its school district anticipates spending $260,000 more than under the previous plan.

Franklin Township (which filed a complaint, calling Chapter 44 an unfunded mandate) saw health care costs rise by $1 million a year. “If every employee of the Franklin Township Board of Education switched to the new plan, it would result in employees and the Franklin Township Board of Education paying a combined $1,131,967.68 more,” the Somerset County district said in its complaint. Montclair Public Schools projects that in 2022-2023 employee benefits will cost $23,430,673, or 17% of its total operating budget.

So the Murphy Administration was supposed to strong-arm Horizon to get back $34 million after it failed to deliver on those promised lower costs. But then in late June Bloomberg, in an article called “New Jersey Backs Down from $34 Million Fight With Health Insurer,” broke the news that Murphy officials would comply with Horizon’s demands because, according to Spotlight, “Murphy intervened.” This was confirmed by the New Jersey Association of Counties and the state’s League of Municipalities in an email last Thursday that warned members of the potential for additional expenses.

Everyone is mad (except, presumably, Horizon).

• John Donnadio, the executive director of the New Jersey Association of Counties, told the NJ Globe “statewide, this will cost hundreds of millions of dollars. Not only local governments and property taxpayers, but the employees are going to struggle with this as well.”
• “It’s distressing that the massive health care premium increases are coming on the heels of the shocking report that the Governor’s Office pressured state officials to stop an attempt to claw back tens of millions of dollars from Horizon after they failed to deliver on a contract to lower costs,” said Senate Republican Budget Officer Declan O’Scanlon. “It’s absolutely scandalous that high-level administration officials would intercede to prevent Horizon from being held accountable as premiums are set to skyrocket. Employees, retirees, and taxpayers deserve to know why.”
• The New Jersey School Boards Association was especially concerned because districts already have budgets for the 2022-2023 school year. Association president Irene LeFebvre said, “This move would have a very negative impact on district budgets. It diverts tax dollars from classrooms to the detriment of student services, academic programs and appropriate staffing — and it ultimately undermines student achievement.” (See here for NJSBA’s full statement.)

Senate President Nick Scutari, Senate Majority Leader M. Teresa Ruiz and Senator Paul Sarlo, the Chairman of the Senate Budget Committee (all Democrats) issued a statement urging the Murphy Administration to immediately take action about the suddenly-revealed plan that will result in 24% increases in health benefits premium costs for public employees and 15.6% increases for teachers and other school employees. 

This is a staggering increase that will saddle taxpayers, public sector workers and educators with higher costs at a time when we are all contending with inflationary pressures and a possible recession. We urge those with approval authority to reject the plan that was suddenly scheduled for action with little notification and no real justification. The Treasurer should use her authority to block the planned approval and make sure a full accounting of the finances of the two health benefits’ plans is made public and fully discussed. There should be no rate increases without justification and they should be prepared to take whatever steps are needed to mitigate the financial impact of any rate changes. We will get engaged in this issue to prevent these exorbitant increases from being approved.

It’s possible that COVID-19 infections raised the costs of providing healthcare to people, as some have suggested. But it doesn’t explain the Murphy Administration’s lack of transparency and why even top legislative leaders were out of the loop.

“I think that the increases are just unsustainable,” Donnadio said. “I think that the commission, I think that the administration, and I think that our state leaders have to do a much better job at negotiating lower rates, or we’re going to recommend to our members that they leave the State Health Benefits Program.”