TRENTON, NJ - The New Jersey Education Association notched a massive legislative win on Monday by finally reducing the financial costs of their New Jersey members for health insurance. The legislation approved is navigating its way to the Governors desk.

Who will actually pay for it remains to be seen. For now, the teachers union can bask in victory as Republicans joined Democrats in approving the measure. The campaign by the strongest teachers union in the state was incredibly successful as the votes were unanimous.

According to a press release from a sponsor, Senator Declan O'Scanlon, It is estimated the reform could result in cost savings of more than $1 billion combined between New Jersey taxpayers and NJEA members. Teachers could save as much a total of $400 million. 

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“Our state has earned a national reputation for its outrageous property taxes and reining in the cost of health benefits for public workers is a keystone requirement to making New Jersey more affordable,” said O’Scanlon, a member of the Senate Budget and Appropriations Committee. “Property taxes are a No. 1 concern for many residents who are considering moving out of the state. The Legislature has more work ahead of us to do, but this is a significant step in the right direction.”

The figures quoted by O'Scanlon were not supported by any public analysis.

Specifically, the NJEA succeeded in a long desired statewide goal of overcoming and essentially removing the contribution schedule for health insurance known as Chapter 78. Chapter 78 was a contribution schedule that was designed to provide cost sharing by employees in order to provide  tax relief to local towns and schools. The scale, depending on income was as high as 35% of premium. The NJEA has long fought against it. 

School Contracts Now Forced Open

All schools that think they have contracts in force right now will be affected as well. Normally, new regulations apply to the next contract. Not this time, They will all - across the State of New Jersey - be legislatively reopened as they must start the new health plan on 1-1-2021. Districts that do not have a contract in place, like Holmdel, do not have the same problem.

All health insurance plans will primarily need to fall in line with the new plan designs and options.  They cannot keep their current contract for medical insurance. The challenge for certain boards is that they may have provided above average pay increases to modify health insurance plans. Now, the salaries they gave up stay the same but the medical insurance they negotiated is changed by their area legislators.

Here are the broad strokes of the new law. There is a link later in the article so it can be viewed completely.

Employees, who contributed on a scale that goes up to 35% of the insurance premium, will no longer have to do so. Instead, they will move to the New Jersey Educators Plan on January 1, 2021 unless they opt out for another plan. However, by opting out they will have higher contributions. So it is unlikely that anyone will stay in a platinum plan at a higher expense instead of moving to another platinum plan with a major salary savings.

The Direct 10 and Educators Plan are both considered 'Platinum', so the value is similar in many ways. As an example, the New Jersey Educators Plan will provide these sample benefits:

  • $10 copays for doctors
  • No in-network deductible
  • $15 copays for specialists
  • $5 copay for generic drugs
  • $10 copay for brand name drugs

Short on Facts

It's not clear how the new plan premium will be reduced. The official legislation Fiscal Impact statement from Coughlin says the savings are 'indeterminate':

"The anticipated net savings associated with plan design changes offset by reductions in employee contributions are indeterminate. The savings from the restructuring of the plans offered by the SEHBP and equivalent plans required to be offered by non-SEHBP employers are indeterminate because migration is not predictable. The greatest savings are predicated on 100 percent migration to the new plans and various plan design changes. If the equivalent new plans are less expensive than the plans currently offered by non-SEHBP employers and employees migrate to those plans then non-SEHBP employers will experience greater savings. These savings will be offset by reductions in employee contributions of those members who choose to migrate to the new plans."

You can read the full text of the law HERE

Another plan is also listed in the law though it is not created yet. It is called the Garden State Plan.

The Garden State Plan is described as being the same design as the New Jersey Educators Plan but utilizes a New Jersey provider network only. In the event that the majority of claims are already in network with discounts, the claims experience may be similar. However, Senator Sweeney and Assemblyman Coughlin appear convinced that the savings will be high. So high, in fact, that the salary contribution by a teacher is reduced by literally half.

In the example of a teacher earning $100,000 the contribution they currently make before this law of about $13,000 will be reduced to $3,300. A major reduction that will need to be funded elsewhere in the school budget. 

The new health insurance law does expressly states that the new plan will need to save money and set a course of how that is to be shown from an actuarial perspective. There are various reporting requirements as well to confirm certain minimum savings levels. So, will they save money or will this further burden the highest taxed people in the United States? You may have to wait for three more years to find out. According to the Assembly amendments:

It is "required (that) the State’s actuary for the School Employees’ Health Benefits Program, within 30 days after June 30, 2023, to issue a report validating a net annualized savings of at least $300 million comparing plan year 2020, 2021, and 2022 that measures the implementation of the New Jersey Educators Plan and Garden State Health Plan, and the SEHBP NJ Direct 10 and the SEHBP NJ Direct 15 plans."

It is hoped that the savings from new plan designs and other modifications will so significantly decrease costs to the system that both the union members and the taxpayers will win. That is their expressed goal. The new salary based employee contributions until 2027 are fixed. The other features are largely variable and appear to remain a work in progress.

Awaiting final action and Governor's signature, two of the most important areas of collective bargaining and largest cost drivers for taxpayers, employers and employees will no longer exist for local school boards. That is employee benefit design and employee contributions. They have been decided in Trenton. Locally, Senator O'Scanlon, Assemblywoman DiMaso and Assemblyman Scharfenberger all approved in favor of the measures.