June July 2020
  • Mort Reinhart
  • Bill Awaiting Governor’s Signature

    Will Lower Employees’ Health Costs


    Governor Phil Murphy on July 1, 2020 will sign into law a bill, passed by both houses of the Legislature, which is intended to lower the health insurance contributions of school employees and to save the State and local governments millions of dollars. The resulting law would impact the School Employees Health Benefit Plan (SEHBP) directly and all other health plans covering school districts indirectly. The changes resulting from the legislation will take effect on January 1, 2021.


    (The information contained in my column this month is based on my reading of the legislation  and my review of newspaper articles and synopses published by the parties involved in producing this piece of legislation, since the actual implementation of the changes in the legislation will not take effect until later in the year.)      


    Sponsored by State Senate President Steve Sweeney and a number of other State Senators, the legislation would streamline the offerings of the SEHBP and would require that all non-SEHBP health plans covering school employees provide at least equal benefits of the SEHBP to employees of their school districts. It would also reduce the number of offerings of the SEHBP starting in January, 2021.   


    The legislation has several aims:

    1. It is intended to offer all employees of school districts an opportunity to reduce the health contribution amounts that they currently pay as a result of the passage of Chapter 78, P.L. 2011 by (a) changing the basis of their contributions from premium cost of the insurance to the base salary of each educator and (b) reducing the percentage of that base used to determine their contributions;
    2. It is intended to save local school districts an estimated $640 million, educators $400 million and the State $30 million. The total overall savings anticipated for all parties is $1.07 billion;   
    3. The amount saved by the school districts is intended to be used by the district “solely and exclusively …for the purpose of reducing the amount that is required to be raised by the local property tax levy by the school district for school district purposes.”


    In essence, it is intended to be a “win-win” for everyone. 


    The details of the plan were agreed upon by the State, represented by Senator Sweeney and other members of the Legislature, and the state teachers’ association, the New Jersey Education Association (NJEA), through collaborative discussions over a period of time.


    The highlight of the changes includes the introduction of a new basic plan, called the New Jersey Educators Health Plan (Educators Health), which will replace the SEHBP as the basic plan for educators offered by the State in 2020-2021. It is assumed that all current employees in districts which are enrolled in the SEHBP will move to Educators Health. All new employees enrolled after the implementation of the new plans will automatically be enrolled in the Educators Health. The legislation contains an outline of Educators Health. That outline is intended to show that the plan is very similar to the current SEHP with some minor adjustments.


    Next year, for the 2021-2022 school year, another new plan, called the Garden State Health Plan, will be added to the mix. There will also be two Blue Cross/Blue Shield plans, Direct 10 and Direct 15, available in addition to the two new plans added. Thus, this year there will be three plans available to educators and next year there will be four.


    According to the legislation, once school reopens this year and all the mechanics of the new law are ironed out and all the kinks of reopening school are solved, there will be an open enrollment period by Educators Health for EVERY school employee in the state. In those districts which currently are not part of the SEHBP, each educator will have the opportunity to move his/her health insurance coverage to Educators Health. It is possible, therefore, for a district to have some employees in the district’s plan and some employees in the Educators Health. Those who move to Educators Health will have their paycheck contributions calculated according to the new formula: (a) a smaller percentage times (b) their base salary. Those who choose to remain in ANY OTHER plan will continue to use the Chapter 78 method for health insurance contributions: (a) the current percentage they pay times (b) the district’s health plan premium.


    It is expected that the vast majority of educators who move to Educators Health will see their health contributions decrease by a significant amount. The reason for this decrease can be seen in the percentage being used for deduction purposes. The range of percentages of the current deduction chart goes from 3% to 35% of premium, depending upon salary and marital status. Under the Educators Health, the range of percentages range from 1.65% to 7.45% of salary, depending on salary and marital status. Some may save thousands of dollars, others not as much. (There will be a few people who will not see a savings; they will be those whose earnings are among the highest in the district).


    When the Garden State Health Plan joins the possible health choices, its range of deductions will be half of those of the Educators Plan. That is because the Garden State Plan restricts plan services to New Jersey hospitals and New Jersey providers. It will only pay out-of-state providers if the health service is not available in New Jersey. The benefits are supposed to be the same as Educators Health. Not much else is known about the features of the Garden State Plan at this time. The SEHBP Design Committee is supposed to develop the details for the Garden State Plan by December 31, 2020, but with the pandemic causing delays in every walk of life, it is not likely to meet that deadline.   


    Retirees who are not eligible for Medicare (under age 65) can remain in the Educators Health plan until reaching age 65, at which time they can choose either the Original Medicare program or the Medicare Advantage program offered to all 65 and older retirees by the Division of Pensions and Benefits. Their payments will be based on their pension amounts, since they are not receiving a salary. 


    In the original bill introduced in the Senate by Senator Sweeney, the Educators Health plan and the Garden State plan (after it becomes effective in 2021) and all independent plans with benefits equal to those plans and their reduced percentages were to remain the same until June 30, 2027. However, an amendment in the Assembly, requires that the State’s actuary for the SEHBP complete an actuarial valuation by June 30, 2023 to determine if there actually has been a saving to the State of $300 million as a result of the changes resulting from the legislation. If that savings has not been reached, the SEHBP Design Committee has 60 days to “adjust” the rates of contribution and/or the benefit structure in such a way as to eliminate the shortfall. If the Design Committee is not able to reach agreement, the State Treasurer will have 45 days to determine the changes needed to accomplish the closure of the shortfall. Any adjustments that are required by this evaluation shall take effect on January 1, 2024. These adjustments will remain in effect until December 31, 2027.   


    It is assumed that after 2027, negotiation between Boards of Education and the employees’ representatives will once again be able to include health insurance in their collective bargaining. That is not in the legislation; it is an assumption based on the fact that the new law is silent on what happens after December 31, 2027.   


    As more information becomes available, it will be disseminated.