Bill > A963

Introduced Session

This bill is one component of a three-part package that is essential to ensuring New Jersey's long-term fiscal viability. The package will responsibly require a return to full pension payments, cover a portion of the costs with health benefit reforms, and create a task force to oversee implementation and resolve issues of detail. The viability and affordability of New Jersey's public pension and health benefit systems are integral to the State's overall fiscal condition and thus bear strongly on other key areas of concern, from funding priorities such as school aid, hospital aid and safety-net programs to controlling and reducing property taxes. The provisions of this bill reflect some of the recommendations of the New Jersey Pension and Health Benefit Study Commission set forth in its February 24, 2015 and February 11, 2016 reports. This bill is part of an overall effort to reform and continue high-level health care benefits for public employees and retirees and the savings realized from these reforms would make it possible to preserve retirement benefits and support the unfunded accrued liability of the current retirement systems. Specifically, the commission states that the reforms "would reduce the State's health benefits spending to a sustainable level and permit the resulting savings to be used to bolster pension funding." This bill is intended to be considered in conjunction with Assembly Concurrent Resolution No. 190 of 2016 which proposes to amend the New Jersey Constitution to authorize the Legislature to change pensions and health care benefits for public employees and retirees in this State and to require the State to make its annual contributions to those pension systems. Therefore, this bill will take effect four months after the approval by the voters of the constitutional amendment. The bill is also intended to be considered in conjunction with a bill to establish a task force that will develop the details needed to implement the commission's recommendations. The commission made comprehensive proposals in its reports for modifications to both the pension and health care benefits for public employees and retirees. The commission stated that its "proposed approach is simple: reset the retirement and health benefits that public-sector employees will receive in the future to private-sector levels and use the resulting savings going forward to pay off the existing pension deficit." The commission stated that "the resulting mixture of benefit adjustments, additional funding and structural changes offers the State its best chance to avoid the painful collapse of its public employee benefits system." Such is the gravity of the crisis that the status quo is not acceptable. The commission also found that "significant reduction of health benefits costs at the State and local levels is an essential element of any effort to provide public-sector employees with adequate, sustainable and certain retirement benefits funding." The commission concluded that there are "no plausible solutions to closing the pension funding gap without comprehensive benefits reform. Without reforming health benefits and using the savings to help pension funding, it is simply impossible to provide adequate, sustainable and certain employee benefits funding at a cost that the State's citizens can bear." The commission found that a constitutional amendment as described above would make the State's power to alter benefits clear and would provide the flexibility necessary to craft a workable, long-term solution to the current crisis. The commission stated that, with a constitutional amendment, "the longstanding gap between [pension] funding required and funding provided will finally be closed by reducing funding requirements to a set schedule of payments at a sustainable level." The commission concluded that if "benefit obligations, particularly health benefits costs, can be reduced to a sustainable level," a constitutional amendment should provide a mechanism to guarantee the pension funding obligations defined in the commission's reports. This bill provides that no health care benefits plan for public employees and retirees can exceed the gold level as set forth in the federal "The Patient Protection and Affordable Care Act" (42 U.S.C. s.18022). This limit will apply to the contracts providing such plans entered into after the bill's effective date. According to the commission, the gold level standard serves as a benchmark for high quality plans in the private sector. Under the bill, all government entities in the State will be required to consider and include, to the extent appropriate, feasible, and cost effective, as part of each plan: wellness programs; patient-centered medical homes; reference-based pricing; on-site medical clinics; comprehensive urgent care centers; greater use of generic drugs and prescriptions by mail; network improvements to enhance in-network utilization and reduce out-of-network utilization; and adjustments to in-network deductibles, copays, and out-of-pocket expense limits, and other components, to enhance in-network utilization and reduce out-of-network utilization. The government entity must consider for each plan the inclusion of research-proven best practices in the delivery of health care and the optimization of a network of high-value providers. The commission states that "in general the State should follow the best practices which have evolved elsewhere to minimize costs while providing quality health benefits." The bill prohibits the payment of any reimbursement by a government entity for the premium for the Federal Medicare Program to active public employees and certain future public retirees, and their spouses. The commission states that significant savings could be realized "system-wide by eliminating Medicare Part B reimbursement, an anachronism dating from an era when incentives were deemed necessary to encourage what is now near-universal enrollment in Medicare. Not surprisingly, private employers are increasingly declining to offer this benefit to new retirees and are capping it or eliminating it for existing retirees." Under the bill, all public employees would be required to pay a portion of the cost of the health care benefits coverage they receive. The default payment would a percentage of salary identical to those percentages required by P.L.2011, c.78. However, like that law, the bill allows boards of education and local units to negotiate with employee representatives to achieve the same or greater savings to taxpayers through an alternative to those percentages, through plan design changes, or both. P.L.2011, c.78 required all public employees to contribute toward the cost of health care benefits coverage, with the same provisions concerning negotiated alternatives, but expired after four years. The commission states that preserving the P.L.2011, c.78 "below-average employee contribution grid ensures public employees will continue to enjoy better than private sector health benefits, since they will continue to make below average premium contributions while receiving high private sector gold level health benefits." The bill adds one additional member to the State Health Benefits Plan Design Committee and the School Employees' Health Benefits Plan Design Committee. The new member would be a member of the public appointed by the Governor. This new member will be a non-voting member except in the event there is a tie vote, in which case the member will be permitted to vote. Currently, the two committees each have an even number of members. The commission states that the committees "which by statute must have equal labor/management membership, were created as a forum for employer-employee collaboration. In practice, this built-in mutual veto has blocked reform efforts proposed by either side and has had the effect of locking in above-Platinum-level health benefits for public employees. Both labor and management have expressed acute frustration with the workings" of the committees. As a result of the implementation of this bill, local boards of education will realize savings in their cost for providing health care benefits to their employees. This bill requires that those savings be applied as payments toward the cost of health care benefits provided to the board's retired employees. Currently, the total cost for SEHBP health care benefits for retirees is borne by the State. The commission's report recommends this shift in cost and recommends that it be limited to the extent savings are realized from the reforms in this bill. The bill requires public employees for whom health care benefits coverage in retirement is to be paid for, in whole or in part, by the employer or a public entity other than the employer pursuant to law or collective negotiations agreement to purchase health care benefits coverage through a health care insurance marketplace or exchange with the cost of the coverage to be reimbursed by the employer or entity with such funds as may be necessary to purchase the level and extent of health care benefits coverage the employer is committed to provide for the retiree and the retiree's dependents. However, the coverage cannot exceed that of a "gold level" plan and, for Medicare-eligible retirees, the employer or entity will provide funds sufficient to cover the cost of a Medicare advantage prescription drug plan and the average cost of out-of-pocket expenses and prescription drug costs of such a plan. This provision will apply to all current and future retirees. The funds for the cost of coverage will be provided through such appropriate retiree reimbursement accounts that are most beneficial to the retiree as may be permitted by federal or State law. The public employer must develop and initiate a plan for implementation of this requirement in compliance with applicable federal and State law. The plan must include a schedule for transition of all current retirees, which may be completed in stages as may be necessary to ensure an orderly process, but is to be completed within three years after the bill's operative date. Finally, the bill requires that the State Treasurer establish a program to provide subsidies for out-of-pocket health care costs to active and retired public employees. The savings realized through the implementation of this bill will fund the subsidies. New Jersey's State-administered retirement systems are collectively in a dire state of underfunding. There is no serious disagreement among policymakers that regular State payments must be made in amounts as close as possible to the actuarially required contribution until full payments can be made on a sustained basis. The only significant disagreement is on which course of action to take in funding those contributions: to do the responsible work of identifying how to pay for them, or to simply create a constitutional mandate to make the contributions without a credible plan to cover the cost. Yet history has shown that when State officials fail to plan for the costs they incur, the taxpayers suffer the consequences. This bill is part of a comprehensive plan to take the responsible approach. This plan is to move health benefits for public employees closer to those that most workers for large companies receive, and mandate that the resulting savings go towards paying down New Jersey's pension debt. Retirement system changes will also ensure that pension system costs will not again balloon beyond affordability. Without such changes to public employee benefits, it will be mathematically impossible to make full pension payments in the short term except with extreme cuts in State services or in priorities such as education aid, or raising taxes to a level that would pummel the State's taxpayers and stunt its economy. The Pension and Health Benefit Study Commission estimated that the amount of money needed would equal raising the sales tax to 10 percent or increasing income taxes by 29 percent. Anything close to those levels of taxation would be clearly disastrous, wiping out jobs and pushing even more families out of the State. Those who claim that full pension payments can be made without reforming benefits owe it to the taxpaying public to be honest with them about how they, the taxpayers, will pay the cost. Responsible policymakers will show taxpayers their plan in advance, rather than take the tragically common route of cementing a huge fiscal obligation first, and only later sending them the bill. Common sense and mathematics make clear the need for benefit reform, but confirmation also comes from the nonpolitical agencies that assess New Jersey's finances. Moody's Investors Service wrote in April 2015: "Without meaningful structural changes to the state's budget, such as pension reform that dramatically improves pension affordability, the state's structural imbalance will continue to grow, and the state's [credit] rating will continue to fall." S&P Global wrote in August 2015: "A positive rating action or outlook revision would require the implementation of credible pension reform." The package of which this measure is a part is designed to ensure the continuation of retirement and health benefits for public employees in a fiscally responsible manner that will protect all New Jersey residents from the calamitous results of failure to properly address the State's most serious and pressing budgetary issues.

AI Summary

Committee Categories

Nancy Muñoz (R)*, 

Introduced, Referred to Assembly State and Local Government Committee (on 01/09/2024)

Official Document