LEGISLATIVE FISCAL ESTIMATE

[First Reprint]

ASSEMBLY, No. 5903

STATE OF NEW JERSEY

221st LEGISLATURE

 

DATED: AUGUST 26, 2025

 

 

SUMMARY

 

Synopsis:

Makes various changes to SHBP plan offerings and governance.

Type of Impact:

Potential State and local government expenditure decreases and increases.

Agencies Affected:

Division of Pension and Benefits in the Department of the Treasury; certain local government employers.

 

 

Office of Legislative Services Estimate

Fiscal Impact

Annual 

 

Potential Net State Expenditure Impact

Indeterminate

 

Potential Net Local Expenditure Impact

Indeterminate

 

 

 

 

·         The Office of Legislative Services (OLS) finds that making various changes to health plans offered by the State Health Benefits Program and the governance of the program may result in an indeterminate net fiscal impact to the State and participating local government employers. 

·         The OLS anticipates that certain changes in the governance and operation of the program may also result in potential indeterminate annual expenditure increases for the State and participating local government employers.

 

 

BILL DESCRIPTION

 

      This bill makes various changes to health plans offered to and contributions required of local government employees participating in the State Health Benefits Program, as well as changes to the governance of the program.  The primary changes include:

·         abolishing the State Health Benefits Plan Design Committee and transferring the powers and responsibilities to the State Health Benefits Commission;

·         removing the super-conciliator process and replacing it with arbitration;

·         changing and reducing the selection of health benefit plans offered to local government employees who participate in the State Health Benefits Programs from 13 plan choices to five;

·         specifying the mechanism by which local employee contributions are calculated and instituting a local employee contribution escalator in the event that premiums increase above a certain threshold and a de-escalator in the event that premiums decrease below a certain threshold; and

·         introducing a two-year waiting period for re-entry to or exit from the program for local government employers.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS finds that making various changes to health plans offered by the State Health Benefits Program and the governance of the program may result in an indeterminate net fiscal impact to the State and participating local government employers.  Certain changes in the governance or operation of the program may also result in potential annual expenditure increases and decreases to the State and participating local government employers, including auditing, claims review requirements, and annual reports.  Primary changes affecting expenditures are outlined below.

 

Abolishing the State Health Benefits Plan Design Committee and transferring the powers and responsibilities to the State Health Benefits Commission.

 

The OLS finds that abolishing the plan design committee and transferring the powers to the State Health Benefits Commission, in addition to replacing the super-conciliator process with an arbitration process, would facilitate the adoption of future plan design changes and cost saving measures as health care evolves over time with the intention of reducing or holding costs down.  As a start, the bill would require the commission to enforce audits and claims reviews, redesign plans, manage costs in consultation with the actuary, and take action to manage costs upon the advice of the actuary when projected plan costs are expected to exceed the rate of medical or prescription drug inflation.  Regarding prescription drugs, the bill would require the actuary to submit a report making recommendations addressing the costs of higher priced medications.  The commission would also be required to take action, including making changes to plan design, as necessary, to manage the costs of higher priced medications.  The bill also requires the commission to review and consider medications newly approved by the federal Food and Drug Administration for inclusion in the prescription drug formularies.  Under the bill, such medications may only be added to the plans’ prescription drug formularies through a majority vote of commission members.

 

Changing and reducing the selection of health benefit plans offered to local government employees who participate in the State Health Benefits Programs from 13 plan choices to five.

 

The bill terminates the existing selection of plans and presents five plans that provide medical and prescription drug benefits from which employees, and retirees who are not Medicare-eligible, may choose.  The five plans include the State Health Benefits Program (SHBP) Unity 2019 PPO, the SHBP Tiered Network plan, the SHBP PPO 2030, the SHBP PPO 2035, and the NJ Gold plan, which will be developed by the commission in accordance with the bill. 

 

A comparison of the currently projected Plan Year 2026 local government employee group premiums of the plan with the highest projected enrollment and most expensive premium, the PPO 10 plan, to the premiums of the existing plans under the local employer group that are specified in the bill reveals lower premiums in the non-PPO10 plans ranging from nine percent to 31.5 percent lower depending on the choice of the plan. 

 

Current Difference in Premiums Compared to the PPO10 Plan(1)

Plan Year 2026 Annual Active Premiums

 

Local

PPO 10

Local

PPO 2030

Local

Unity 2019 PPO

Local

PPO 2035

Local

Tiered Network

Medical Coverage with RX

 

Single

 $       24,270

-8.8%

-11.1%

-13.7%

-31.5%

Employee-Spouse

 $       48,540

-8.8%

-11.1%

-13.7%

-31.5%

Family

 $       67,714

-8.8%

-11.1%

-13.7%

-31.5%

Employee-Children

 $       43,443

-8.8%

-11.1%

-13.7%

-31.5%

Adult Child Rate

 $       19,557

-8.8%

-11.1%

-13.7%

-31.5%

(1) Percentage difference in currently projected Plan Year 2026 premiums between the PPO 10 Plan and the existing plans that are specified in the bill. 

Source: Plan Year 2026 Rate Renewal Reports.

 

 

 

 

 

Specifying the mechanism by which local employee contributions are made and instituting an employee contribution escalator in the event that premiums increase above a certain threshold and a de-escalator in the event that premiums decrease below a certain threshold.

 

Collective bargaining agreements control the mechanism by which local employees of participating local government employers make contributions to pay for the cost of health care coverage.  The bill specifies that the employee contribution mechanism for the local Unity 2019 plan will be compensation-based as under the State Unity 2019 plan, instead of premium-based.  The contribution for the Tiered Network plan will be 75 percent of the rates of the local Unity 2019 plan.  There would be no employee contribution required under the NJ Gold plan. 

 

The OLS anticipates that basing local employee contributions on a percentage of compensation for the local Unity 2019 plan may limit inflation protection for employers who currently reference Chapter 78 in their collective bargaining agreements, as Chapter 78 provides that the employee/employer cost-share ratio is premium-based.  The OLS finds that basing local employee contributions on a percentage of compensation for the local Unity 2019 PPO plan will also reduce employee contributions to the plan by 26 percent or more on average based on the premiums outlined in the Plan Year 2026 Rate Setting Analysis. 

 

Nevertheless, instituting an escalator and de-escalator may help right-size contributions.  The bill institutes an escalator to the local employee contribution rates should the projected upcoming year’s premium (renewal premium) exceed the baseline premium of the current year if the commission cannot agree upon plan design changes or other cost savings measures to reduce the renewal premiums to the baseline premiums.  If the renewal premium is six percent or more higher than the baseline premium, then the bill would apply an escalator to the local employee contributions equal to the Consumer Price Index.

 

If the renewal premium is six percent or more below the baseline premium, the bill would require the commission to manage the plans to share the savings in reduced costs or to improve the quality of the plans through plan design changes.  If the commission cannot agree upon changes, then the local employee contribution rates will be reduced by a de-escalator equal to the decrease in the renewal premium. 

 

Introducing a two-year waiting period for re-entry to or exit from the program for local government employers.

 

The OLS finds that introducing a two-year waiting period for re-entry to, or exit from, the program for participating local government employers may stabilize premiums or costs for participating local government employers.  The premise is that in a self-insured pool of employers, costs are shared among the participants.  If some employers’ costs are higher than others, then the employers with lower costs pay a higher share of the pooled costs.  This encourages lower cost employers to exit the program leaving the costs to be shared by fewer employers and making the program more expensive per remaining employer. 

 

Requiring a two-year waiting period may mitigate the severity of the financial swings caused by unrestrained entry to and exit from the program.  Any cost increase experienced by participating local government employers could also increase costs to the State in certain instances, as current law permits the Director of the Division of Pensions and Benefits to initiate temporary transfers to the local part of the State Health Benefits Program from State part reserves when certain fund balances in the local part fall to a level that is insufficient to cover 10 days of anticipated claims payments.

 

 

Section:

State Government

Analyst:

Anna Harris

Associate Fiscal Analyst

Approved:

Thomas Koenig

Legislative Budget and Finance Officer

 

 

This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).