New Healthcare Law Saves Millions for School Employees but Taxpayers Are Paying More

Mary Ann Koruth of NorthJersey.com brings some needed focus on the reality of the much-heralded 2021 “Chapter 78 relief” law negotiated by then-Senate President Steve Sweeney and the NJEA.  In “New state teacher health plan didn’t deliver promised savings, say school districts,” Koruth reports that out of the 158 school districts surveyed, 85% said that the new law would cost them more money.   When the new law, known as Chapter 44, was passed, Sweeney claimed: “This agreement is a win-win. This is a pretty huge announcement today that we’re coming up with over a billion dollars in savings” – of which $670 million was supposed to go to local school districts – and the taxpayers who fund them.  So far, this is not going as promised for the school districts and taxpayers.

Sunlight will try to explain why.  In our report “Unnoticed $500,000,000 Scandal Is a Warning for New Jersey,” we delved into the state’s School Employee Health Benefits Program (SEHBP), which covers about 1/3 of school employees, with the other 2/3 being covered by health benefits bargained with local school districts.  Looking at SEHBP, we can see why many school districts are paying more for health benefits.

The new Chapter 44 law introduced a new state health plan, NJ Educators Health Plan (NJEHP), which reduced educator health benefits from “platinum-plus” to merely “platinum” (the typical private sector plan provides “gold”-level benefits), thus reducing the cost of the plans.  At the same time, educators’ contributions were reduced from 3 – 35% of the plan premiums to 1.7 – 7.2% of the educator’s salary.  If educators are paying less, then school districts and taxpayers are paying more.

As of August, 2021, only 36% of educators had moved to the less expensive NJEHP, while 64% remained in the platinum-plus legacy plans, but all educators saw their contributions reduced, which means that school districts and taxpayers are paying more.

This is exemplified by the most popular (and most expensive) legacy plan, the NJ DIRECT 10, which still covers 42% of all educators.  Below is the contribution breakdown for the NJ DIRECT 10 Family plan.  Note that the employee’s portion of the premium contribution dropped from 19% under the old law to 11.4% under the new law, with the school district/taxpayers picking up the balance.

For each of the 9,510 Family plans, educators are contributing $2,626 less and school districts/taxpayers $2,626 more, for a total of $25 million.  Doing the same analysis for the next-largest legacy plan, the NJ DIRECT 15, which still covers 22% of educators, or 5,102 contracts, results in another $11 million adjustment.  The total for all legacy Family plans comes to $36 million in savings for employees and additional costs for school districts/taxpayers.

Sunlight then did the same analysis for Single, Employee+Spouse and Employee+Children SEHBP plans.  The total for all types of legacy plans comes to $70 million in savings for educators and additional costs for school districts/taxpayers.  And this is only for about 1/3 of educators.  Extrapolating over all school districts suggests that the overall amount would be somewhere in the $200 million range.  That’s a lot of additional costs for school districts and taxpayers to bear.

Against this $200 million of additional costs would come the savings from educators shifting to the less expensive NJEHP, and so far 20,376 (36%) have.   Looking at the state SEHBP plans only, this suggests savings of about $40 million, leaving net additional costs to school districts/taxpayers of about $30 million.  But as the article above points out, some old local plans were actually less expensive than the new NJEHP.  Extrapolating to all school districts, we estimate that there are probably about net $100 million in additional costs, which is likely why 85% of school districts say they are paying more under the new law.

Clearly, the NJEA (and others) need to persuade more educators to shift to NJEHP (and another, less expensive all-New Jersey-provider plan) to offset the cost-shifting from educators to school districts.  Thus far, too many teachers appear content to stick with the most expensive legacy plans and let the school districts and taxpayers pick up 89% of the cost.

So far, with $100 million in additional costs rather than hundreds of millions in savings, the new healthcare law is looking like a “win” for school employees, not the “win-win” that was advertised by Sen. Sweeney.  Once again in New Jersey, looks like the taxpayers will end up paying more taxes.

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Note: Sunlight gives a shout-out to BuryPensions for drawing our attention to the NorthJersey.com article.