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Proposals pitched by the Murphy administration to reduce public worker health plan costs could generate verifiable savings — but competing proposals from labor unions largely could not, the state actuary says. (Getty Images)
New Jersey could save hundreds of millions of dollars each year by slimming generous public worker health plans or by increasing members’ share of costs, but no other proposals would alone save enough to achieve a $200 million cut called for by language in the state budget, the state’s actuary said.
Proposals pitched by the Murphy administration to reduce costs could generate verifiable savings, said Aon, the state’s actuary, but the same could not be said of nearly every competing cost-saving proposal submitted by unions. The few labor proposals that would generate verifiable cost savings fell far short of the reduction levels called for by the budget, Aon said.
New Jersey’s public worker health plans are in distress, their premiums driven up by inflation, growing utilization, and municipal departures in its local government part that increase risk and push premiums yet higher.
Aon said a recent administration proposal to eliminate all existing public plans and replace them with ones that carry lower actuarial values — the share of medical spending paid for by a health plan, rather than workers — could save the state between $135 million and $304 million a year across active and retired populations, depending on which new plans were chosen.
“We appreciate the plan actuary’s analysis of both the State and Labor’s savings proposals and look forward to continuing our work with all parties to reach an agreement,” said Tyler Jones, a spokesperson for Gov. Phil Murphy.
Existing New Jersey health plans carry actuarial values between 93% and 98%, though most members are enrolled in plans at the higher end of that range, according to a Treasury report released in May. The state’s proposed plans would carry actuarial values between 88% and 94.5%.
The plans supported by the Murphy administration typically feature higher deductibles and out-of-pocket maximums and in many cases would set copays at a higher level than under existing public worker health plans.
A 2023 plan comparison conducted by Aon found comparable large public employee health plans in the mid-Atlantic region had actuarial values between 93.6% and 96.9%.
Language in this year’s state budget requires labor and administration officials to submit proposals that would reduce costs by at least $100 million in the first six months of 2026, annualized to $200 million a year. The budget calls for savings to be identified only in the state worker part of the State Health Benefits Program, not in the part of the program that covers local public employees.
An administration proposal that would raise members’ in- and out-of-network copays by $1,000 could also achieve significant savings, actuaries said. That change alone would save the state $213 million each year, according to Aon.
For a range of reasons, Aon said it could not weigh the cost savings of nearly every proposal submitted by unions, a fact union officials said should anger New Jersey taxpayers.
“It’s no surprise that the actuary hand-picked by the State would sign off on their own recommendations, ignoring or outright attempting to discredit good-faith proposals we’ve made to put a stop to this,” said Billy Gallagher, assistant to the vice president at CWA District 1 (the CWA is the largest union of state workers).
The actuary identified cost savings for only two union proposals: one that would encourage members to move to lower-cost, high-deductible plans by offering lower contribution rates, and another that would raise copays for anti-obesity GLP-1 drugs like Wegovy to $35 or $50.
Aon said moving 10% of enrollees to higher deductible plans would save between $4 and $7 million annually, though they warned the incentives needed to encourage that movement would denude any budget benefits.
“These additional costs could significantly offset the projected savings,” the actuary wrote.
Raising copays for GLP-1 drugs would save $4 million or $20 million a year, depending on whether copays moved to $35 or $50, Aon said.
For every other solution raised by unions, the actuary said a lack of information, the limited time it was given to review proposals, existing contractual obligations, or the uncertainty of future circumstances left it unable to accurately predict savings.
Aon said the unions’ proposal for reference-based pricing — a policy long-sought by labor that would set health care prices to 200% of Medicare rates — could generate savings if properly implemented, but warned many health care providers were not contractually obligated to accept those rates and could seek higher payments.
Other administration proposals would reduce costs by smaller amounts that, by themselves, would not be enough to reach the required level of cuts, Aon said.
Increasing prescription drug co-pays and requiring members to use generic drugs could save $47 million a year, while excluding coverage for GLP-1 drugs in almost all cases would reduce plan costs for active members by $48 million annually.
“Every idea that shifts costs to workers while propping up the insane price increases charged by the carriers and (pharmacy benefit managers) — those ideas were scored favorably,” Gallagher said.
Requiring public worker spouses to pay $50 to enroll in the State Health Benefits Program could save $26 million, and a proposal to eliminate all but a handful of existing public plans would achieve the same savings, according to Aon.
An administration proposal to limit annual physical therapy and chiropractic visits would save just $6 million a year, Aon said.
The committee tasked with designing State Health Benefits Program plans is due to meet to vote on the proposals next week, but that body’s membership is equally split between administration and union members, and the panel is likely to deadlock. If it doesn’t reach an agreement by Sept. 30, the decision falls to state lawmakers.
But if legislators pass no bill addressing health benefit costs by Dec. 1, a single representative from the unions and administration would be tasked with cost savings. The nonpartisan Office of Legislative Services must select a tiebreaker if no agreement is reached by Dec. 15.
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