NJ Health Care Deal Expiring; Higher Costs Paid by State Workers Could Fall to Taxpayers
Updated On: Jul 06, 2015
NorthJersey.com - Hundreds of thousands of public workers began paying more for their health care benefits after Governor Christie overhauled the system in 2011 — a massive shift that would save New Jersey taxpayers $3 billion over 10 years, administration officials said at the time.
But just four years in, instead of the expected savings, state and local taxpayers are staring at the prospect of footing more of the bill for those medical coverage plans.
The reason: Tucked inside the sprawling 2011 reform law is a sunset provision that says the higher payments required of public workers will expire in four years. After that, the provision says, all health care costs must again be negotiated at the bargaining table as union contracts come up for renewal.
For much of the workforce, that change kicks in at the end of this month.
So New Jersey’s powerful labor unions are gearing up for contract negotiations at all levels of government — from the state to counties, municipalities and school boards — with one unifying goal: to reduce health insurance costs as much as possible for their members.
This coordinated effort, confirmed by several union officials, could end up reducing public workers’ health care payments substantially, depending on the outcome of the talks.
But those costs would not disappear; they would bounce back to employers — and, by extension, to taxpayers.
As it stands, an employee who makes the average annual state salary of nearly $68,000 pays about $2,600 a year for an individual health care plan, according to a study by the Pew Charitable Trusts and MacArthur Foundation.
Once those higher employee contributions expire, the only legal requirement on public workers is to pay 1.5 percent of their salary toward their health insurance, or to cover 1.5 percent of their total insurance premium, whichever is higher. For that same average state worker, that would translate into an annual payment of about $1,000, a savings of $1,600. Those with higher salaries and family coverage plans likely would see even bigger savings.
But there is no way to quantify the impact on taxpayers; it all depends on how negotiations shake out between government officials and union representatives in pockets across New Jersey, a process that could take years to play out in full. Hundreds of different contracts are negotiated at all levels of government and on different time frames.
One of the biggest tests will come this year, when state workers — including the 40,000-strong Communication Workers of America union — begin to renegotiate their contracts.
Hetty Rosenstein, the CWA’s state director, declined to comment on the upcoming negotiations last week. But another CWA official, Dudley Burdge, said that regardless of any contract talks, “Our view is the only thing that’s mandatory is the 1.5 percent, and that’s pretty much across the board for all the unions.”
Christie’s spokesman, Kevin Roberts, said the unions’ efforts could erase the gains the governor has made to control costs in the state budget.
“The historic 2011 reforms finally began the process of putting in place reasonable cost-sharing for health benefits and fairness for taxpayers by having public employees finally contribute meaningfully to those costs,” Roberts said.
“Nothing in the law suggests an intent to return to the costly, broken system of the past where employees paid little — or sometimes nothing — for platinum-level health benefit plans and taxpayers were left with the bill.”
In interviews, union officials described the increase in health care costs for public workers as one of the most upsetting parts of Christie’s 2011 effort to overhaul pensions and health benefits in cooperation with the Democratic Party. For the first time in New Jersey, the law suspended workers’ collective bargaining rights over health benefits.
To mollify union members, the Democrats inserted the provision, saying the higher costs would expire after four years and collective bargaining would resume.
“It is something we’ve been screaming about for years, the fact that it was taken away from us,” said Eddie Donnelly, president of the Firefighters’ Mutual Benevolent Association. Firefighters negotiate their contracts at the local level, and as each bargaining unit enters new talks, Donnelly said, “We are recommending to our members to be creative and do whatever they can to negotiate backward.”
Donnelly said public workers have been bearing the brunt of Christie’s budget cuts and financial reforms. Christie and Democratic lawmakers led by Senate President Stephen Sweeney, D-Gloucester, agreed to increase employees’ pension and health benefit costs around the same time they imposed a cap on local budgets, limiting them to 2 percent growth a year. The cap has helped to curb raises for many public workers, union officials said.
“The health care piece to this, they thought they were making us contribute, but when you couple it with everything else, it actually took our net salary backward,” Donnelly said.
A spokesman for Sweeney did not respond to requests for comment. Officials at the New Jersey Education Association said they were encouraging their local bargaining units to follow the same pattern as they negotiate the renewal of their contracts.
Steve Baker, an NJEA spokesman, said union members also remain up in arms about Christie’s decision to cut $2.4 billion from payments to the state pension system, payments he had promised to make for seven years when he won legislative approval of his 2011 reforms. The payments were intended to rescue the pension system from collapse — a seven-year cash infusion to stabilize the ailing retirement funds — but Christie reneged on the plan last year and said New Jersey’s economy was too weak to keep up with the pension payments.
“Certainly, our members are deeply concerned about the costs that were imposed on them,” Baker said, “particularly in light of the governor’s refusal to make the payments that the state was supposed to make.”
The state Supreme Court this month ruled that Christie could cut the payments to the pension fund under his budgetary powers, but noted that his decision to walk away from his promises during a pension-funding crisis had caused a “staggering” loss of public trust.
Health benefits for New Jersey’s public workers and retirees are underfunded by $53 billion, according to state officials, posing one of the biggest long-term financial problems in the state.
Linda J. Schwimmer, vice president of the New Jersey Health Care Quality Institute, a non-partisan think tank, said that public workers appeared to be “posturing” ahead of contract talks but that their frustration was “certainly understandable.”
“There are a lot of people in the state who have been working on the same salary for at least the last seven or eight years, and yet they see their pension contributions increase, they see their health benefits increase, and they see their co-workers take early retirement, so there’s more work,” she said.
But the reality is that employers — whether in the public or private sectors — no longer operate in a world where they pay the lion’s share of their workers’ health plans, she said, because health care costs have been ballooning for years.
And come 2018, the state’s relatively generous health care plans could fall under a new tax imposed by President Obama’s Affordable Care Act, which will target states that offer what are called “Cadillac” health insurance packages.
“It changes the conversation,” Schwimmer said. “Right now the conversation is this back-and-forth between, ‘how much of the total cost are you going to pay’ versus ‘how much I’m going to pay.’ But with that Cadillac tax looming, the conversation has to change to, ‘How do we decrease the cost of health care?’Ÿ”
At town hall-style events across the state, Christie has also warned about the looming “Cadillac tax,” although union officials maintain that New Jersey may be able to escape it because it has more women than men in its workforce, and other factors that could mitigate or avoid the tax.
Meanwhile, Christie has said workers should not be paying a dollar less but, rather, substantially more, for their health care plans. A special commission Christie appointed last year recommended that public workers pay more than they do now for health insurance. State Democrats and union leaders have dismissed that plan.