After months of behind-the-scenes negotiation and to widespread acclaim, Governor Murphy signed into law S-2273/A-20, a healthcare reform bill that promises to reduce the cost of health benefits for both teachers and taxpayers.  This widely praised new law aims to reduce school district (and thus taxpayer) costs by $640 million per year and teacher costs by $404 million.  The bills passed in the legislature unanimously, which underscores the wide-ranging benefits expected from the bill.

Senate President Steve Sweeney deserves tremendous credit for driving a hard bargain on behalf of NJ’s beleaguered taxpayers.  While the NJEA also deserves credit for compromising, it engaged in a multi-year, multi-million-dollar campaign to strong-arm the legislature to reduce premium costs for teachers.  Its tactics included the usual saturation-lobbying of legislators but also new inducements, such as the $2.75 million donation to the Super PAC NJ United, which has close ties to Assembly Speaker Craig Coughlin.  Coughlin sponsored a bill much more favorable to the NJEA (A-5814), which Governor Murphy dutifully would have signed.  To his great credit, Senator Sweeney blocked A-5814 and demanded increased savings for school districts and taxpayers.  (See SPCNJ’s “Unnoticed $500,000,000 Scandal Is a Warning for New Jersey” for a full discussion of the NJEA’s lobbying campaign as well as the scandal-plagued, excessively expensive healthcare plans under the status quo ante).

The new law has numerous attributes.  At long last, it addresses an ongoing, massive scandal: under the two new health plans, out-of-network payments for physical therapies will be capped in the same way as these payments were capped for state employees five years ago.  Righting this wrong would, by itself, save over $130 million a year.  The two plans also reduce benefits somewhat – although the plans are still far more generous (and thus more costly) than the most expensive plan for state workers.  Under the new plans, the teachers’ share of the premiums will be based on a percentage of their salaries rather than the cost of the premiums.  Thus, a teacher earning $70,000 would pay 5.5% for a family plan, or $3,850, as compared to $6,867 for the current most popular plan.

There is one huge caveat upon which much of the projected savings depends.  The two most expensive and most popular health plans, NJ Direct 10 and 15, to which 87% of teachers subscribe, will remain.  While new teachers must join the new plans, existing teachers must be persuaded to choose the new plans over NJ Direct 10 and 15.  Clearly, it is hoped that teachers will opt for lower premium costs in exchange for slightly reduced but still generous benefits.  But that is not guaranteed.  There were cheaper options available than NJ Direct 10 and 15, and yet teachers overwhelmingly chose the most costly plans because they liked the exceedingly rich benefits.

So the bottom line is that the NJEA will have to persuade existing teachers to choose the two new plans.  Reduced premium costs alone did not persuade many teachers to switch in the past, so something else will likely have to come into play.  Will the NJEA deliver?

Seeming to sense this dilemma, the legislature added a late amendment.  If, by 2023, school districts (and taxpayers) have saved less than $300 million annually, the plan administrators much make changes in all health plans to reach $300 million.  This puts a floor of $300 million for annual savings, which is obviously substantially less than the $640 million advertised.

So the success of this reform bill hinges on one big question:  Will the NJEA deliver?