State confirms Newark prohibited from reimbursing retiree health care costs after controversial plan change


When Newark switched over to the State Health Benefits Plan (SHBP) in August, the prescription plan it offered to police and fire union employees and retirees was not the same as what it had offered in the previous plan.

Under its contractual obligations with the unions, the city was required to offer the same benefits package if it switched health plans. So to make up for the difference, the city offered to reimburse employees and retirees the differences in co-pays and drug costs.

Just one problem: The state says reimbursing employees is not allowed.

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"We advised that a reimbursement fund is not permitted," said David Pointer, the deputy director of the state Division of Pensions and Benefits, in an Aug. 31 letter to city officials obtained by TAPinto Newarkpdf.

"Accordingly, the Division determines that any proposed reimbursement of prescription drug copayments by a participant in the plan, including the City, are inconsistent with the plan and may not be offered by the City." 

The state's ruling puts the city in a bind because if it is not allowed to make up the difference, then -- by definition -- the new health plan is not the same as the one previously offered, which would appear to be in violation of the union agreements.

"This is exactly why the city needed to do their homework prior to trying to implement this plan. It was just a rush job from the start," said James Stewart, Jr., president of Newark Fraternal Order of Police Lodge #12. "And now, we are paying the consequences." 

While the administration of Mayor Ras Baraka reassured employees that their benefits would either stay the same or improve, four unions representing police and firefighters sued, claiming the SHBP does not provide the same benefits as required in their contract. The unions filed unfair practice charges in the state Public Employment Relations Commission (PERC). 

The problems began when the city attempted to move all of its employees and retirees into the SHBP in an effort to save $14 million, a move that was approved by the City Council in January and set to take effect May 1.

When the change was announced in January, Business Administrator Jack Kelly stated health care costs made up about 16 percent of the city's $650 million budget. Kelly has also stated that any unnecessary reductions made regarding retirees because of confusion over the shifting health plans would be reimbursed by the city using a debit card-like program. 

The city missed the May 1 deadline to enroll in the SHBP and received approval from the state to switch over on Aug. 1. 

However, the unions won a victory on July 21 when a state superior court judge enjoined the city from rescinding the Traditional Health Insurance Plan and ordered the city to maintain and/or restore coverage for the union's active and retired members.

Because of the judge's ruling, the state has not allowed the union employees to enroll in the SHBP, according to an Aug. 4 letter from Pointer. 

The Aug. 4 letter explicitly states that the city is prohibited from reimbursing employees.

The city, however, officially asked that an Aug. 8 letter be considered a request to offer reimbursement for out-of-pocket expenses for retirees enrolled in the SHBP for the difference in prescription co-pays. The Aug. 31 letter from Pointer was written in response to the Aug. 8 letter. 

State officials could not be immediately reached for comment. 

Kelly could not be immediately reached for comment. 

"We have thousands of retirees that are left holding the bag, paying exorbitant amounts of money for prescriptions, with absolutely no plan in sight to reimburse them," Stewart said. "This is absolutely shameful, and it's outrageous, that this is being done to men and women that devoted their working careers to the City of Newark." 

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