Borough Weighs Cost Savings On Benefit Plan

The borough could potentially save $90,000 by switching to the State Health Benefits Plan (SHBP), but Art Caughlan, the borough's risk manager, raised some concerns about the stability of SHBP.

Caughlan compared the borough's current health benefits plan with Cigna to SHBP at last week's mayor and council work session. Caughlan's main concern with recommending that the borough switch to SHBP, provided through the Department of Treasury Division of Pensions and Benefits, was that it is still recovering from financial instability caused by years of the public employee pension fund being used to offset costs in an effort to make the plan more attractive.  

Caughlan explained that in response to the State Comptroller's February report, MagnaCare issued a position paper reporting, in part, that in 2008 SHBP artificially reduced rates to attract more local governments and as a result needed to increase rates by 20 percent in 2010.  

For most municipalities, healthcare costs represent one of the largest non-capital expenses. In New Milford, all borough employees who choose to participate in the borough's plan (and are eligible to participate) must contribute to the cost of their health care plan. According to officials, the maximum contribution after a four-year phase-in is 35 percent of the employee's package premium.   

According to Caughlan, the cost to the borough for Cigna is $1,559,000 while the cost to the borough for SHBP would be $1,670,000. However, Cigna participants are eligible for HRA's--Health Reimbursement Accounts. HRA's are IRS-sanctioned programs that allow an employer to set aside funds to reimburse defined medical expenses, such as deductibles and co-pays. SHBP does not offer HRA's. 

Although the borough currently budgets $430,000 for HRA expenses, the actual cost averages closer to $200,000, raising Cigna's total cost to approximately $90,000 over that of SHBP. 

According to Caughlan, other differences between the plans are:

• SHBP offers a flat rate based on the pool of participants giving municipalities no opportunity to negotiate to control costs. 
• SHBP does not allow local governments any flexibility in plan design.
• SHBP does not provide local governments with claim data so that they can analyze plan design and make changes that would reduce costs. 
• There are more employee out-of pocket expenses in the SHBP. 

Caughlan advised the council that if they decided to switch plans now, under the union contracts, the borough would have to compensate employees. Mayor Ann Subrizi said that it would not be fiscally responsible to change plans now and recommended that they review it again for next year's budget. 

This comparison of plans came at the request of Councilman Austin Ashely, a full-time employee of the borough of Palisades Park, a town that participates in the SHBP.