Inside Murphy’s $260M Fix For NJ Healthcare Program In ‘Death Spiral’

For hundreds of municipalities and local government entities around New Jersey, the State Health Benefits Program-Local Government provides health coverage to local employees.

But as premiums have skyrocketed — rising nearly 60 percent in the last four years — local governments have been withdrawing from the plan, seeking coverage elsewhere. Those departures have, in turn, caused premiums to rise more.

The escalating situation needs significant reforms, Gov. Phil Murphy said at the League of Municipalities conference, to curtail what the state Treasury Department says is a "death spiral" of spiking premiums and government entities leaving the program.

There are nearly 650 local government employers and more than 150,000 New Jersey residents, including active employees and retirees, enrolled in the program.

A rate increase of 36.5 percent for the SHBP-LG program was recommended to the State Health Benefits Commission by AON, the actuarial firm that examines the trends in claims and what is needed to pay out claims. That increase was ratified by the commission.

"While inflationary trends in health care are persistent nationwide and have presented challenges in New Jersey and across the nation over the past several years, the annual cost increases experienced by the SHBP-LG outpace those seen in other public employee plans," state officials said.

"Unless we take sweeping action now to shore up this program, there are tens of thousands of New Jerseyans whose access to health care will be in serious jeopardy. We cannot allow that to happen," Murphy said during his keynote speech at the League.

Murphy proposed short-term relief of $260 million to ensure the financial stability of the program, which is self-insured and pays out medical claims from the premiums it collects.

The $260 million includes $180 million in loan balance forgiveness, along with $80 million for the Claims Stabilization Reserve for the local government program, which has been depleted, state treasury officials said.

The reforms would start with replacing the current system that offers more than 50 plans with three choices: a PPO, a high-deductible with a Health Savings Account, and a tiered network plan, state officials said.

State officials said a 2023 study by AON, the actuary that services the various state health benefits plans, found that one of the factors driving up premiums state and local government employers was "the relative richness of the SHBP plan design," along with few requirements that would encourage people to choose more cost-effective options that still provided them with high-quality health care.

The state treasury department also recommends requiring local government employers to remain in, or remain out, of the state Health Benefits Program-Local Government group for at least five years to reduce the volatility of employers moving in and out of the program. The Treasury Department report on the program said employers move out when premiums spike, but move back in when their claims spike in a way that increases their financial burden substantially.

The proposed reforms include making changes to the body that oversees the State Health Benefits Program by setting up a seven-member Local Commission to "exclusively oversee all matters related to SHBP-LG and local government plan design, with local government and member interests appropriately represented."

That would go along with modifying the State Health Benefits Program Plan Design Committee so it only oversees benefits for state employees; currently it oversees both the state plan and the local government plan. The state committee would have just eight members — four appointed by the governor, three appointed by the governor upon the recommendation of the Public Employee Committee of the AFL-CIO, and one appointed by the governor upon the recommendation of the State Troopers Fraternal Association. The state treasurer would be the binding, tie-breaking vote on the state plan committee. Those changes would break what state officials said "has historically resulted in gridlock and prevented program responsiveness to fast-paced healthcare industry changes."

"We need to simplify and modernize the plans available through the program and ensure that those plans can adapt to a fast-moving health care landscape — today and for years to come," Murphy said.

A bill with the proposed reforms has been drafted. Murphy said he is hopeful it can be passed by Jan. 20.

"Our Administration is willing to provide a quarter billion dollars over the short-term to keep the SHBP for Local Government solvent in exchange for smart structural and governance reforms that will stabilize the program over the long-term," Murphy said, noting that the program provides coverage for the people who keep towns and local entities running — "the sanitation workers who clean New Jersey’s streets and communities every single day. The administrative clerks who work a desk in town hall. Or the county road crews who pave our highways and fill potholes on our streets."

"These New Jerseyans — along with our state’s taxpayers — are counting on us to prevent the SHBP for Local Government from collapsing," Murphy said. "Achieving this goal will require hard decisions. But that is what good government is all about: making reasonable reforms to advance the public good."